Avery Dennison at J.P. Morgan: RFID Innovations and Tariff Strategies

On Wednesday, 12 March 2025, Avery Dennison (NYSE: AVY) presented at the J.P. Morgan Industrials Conference 2025, offering insights into its strategic direction amid global tariff challenges and burgeoning RFID technology opportunities. CEO Dion Stander provided a balanced view, addressing both potential tariff impacts and the company’s innovation-driven growth strategy.

Key Takeaways

• Avery Dennison’s global operations help mitigate direct tariff impacts, while offering opportunities to assist brands in shifting sourcing due to tariffs on Chinese apparel exports.
• The company is focusing on expanding high-value RFID categories, particularly in the food industry, to drive growth.
• Avery Dennison maintains consistent margins across various RFID applications, despite competitive pressures.
• RFID adoption is growing in retail, with a significant opportunity in logistics and food sectors.

Operational Updates

• Tariffs and Demand:

- Avery Dennison’s global footprint limits direct exposure to tariffs.

- Tariffs on Chinese apparel could benefit Avery Dennison by enabling brand sourcing shifts.

- The company expects a relatively neutral inflationary environment for the year, with no significant inventory build-up in anticipation of tariffs.

• RFID Technology and Innovation:

- Avery Dennison is advancing RFID technology, with a focus on food applications, including perishable items.

- Innovations include improved chip performance and antenna design, crucial for RFID efficiency.

- AI is being utilized to accelerate inlay design by 80%, enhancing productivity.

RFID Market Dynamics and Competition

• Avery Dennison aims to maintain a market share greater than 50% across various RFID segments.
• The company offsets price reductions through productivity improvements, maintaining consistent margin profiles.
• While the RFID industry is complex, Avery Dennison’s strategic focus on high-value categories like intelligent labels offers higher growth and margins.

Future Outlook

• RFID Applications and Opportunities:

- Apparel RFID penetration stands at 40%, with logistics representing a 65-70 billion unit market.

- The food sector presents a 200 billion unit opportunity, particularly in perishable categories.

- Retailers are increasingly adopting whole-store RFID solutions, driven by efficiency needs and ROI benefits, as seen with companies like Uniqlo and Decathlon.

In conclusion, Avery Dennison’s conference call provided a comprehensive overview of its strategic initiatives, highlighting both challenges and opportunities in the current market landscape. For more detailed insights, readers are encouraged to refer to the full transcript below.

Full transcript - J.P. Morgan Industrials Conference 2025:

Jeff Zukauskas, Analyst, JPMorgan: Hi, good afternoon. I’m Jeff Zukauskas. I analyze chemicals here at JPMorgan. It’s my pleasure this afternoon to introduce the management of Avery Dennison. And representing Avery Dennison is Dion Stander, who is the Chief Executive Officer, and he’s been CEO since 2022.

Prior to becoming CEO, Dion ran the solutions business for Avery, which is where their RFID business is nestled, their Intelligent Labels business is nestled. His history is that he came to Avery through the PACSAR acquisition way back in 02/2007, which I know some of you remember. Also accompanying Dion is John Eppel, who is in the second row, who’s the Head of Avery’s Investor Relations effort. The form of our discussion will be a fireside chat. And so we’ll begin.

Welcome.

Dion Stander, Chief Executive Officer, Avery Dennison: Thank you very much, Jeff. Good to be here with

Jeff Zukauskas, Analyst, JPMorgan: everybody. I think the first question that’s probably on people’s minds these days are tariffs, in that there seem to be tariffs on the Canadians, on people from Mexico, on China. And Avery is a global manufacturing organization. How do you begin to think about some of these issues?

Dion Stander, Chief Executive Officer, Avery Dennison: So we’ve been doing a lot of work around understanding how tariffs may play out. And I said that with a caveat. I don’t think anybody has a clear view yet as to what the finality of policy will be. But as a business globally, because we’re denominated in most regions around the world, we make, buy and sell in country. So to that extent, tariffs don’t really apply to us.

There’s three vectors where we see some tariff, potential tariff impact, but it’s on the very small side of things for us. So one is if we’re having to source materials from one country to another, that may be tariff bound. One of the experiences we had in ’twenty three when we had the supply chain crisis, the significant stocking and destocking happened into ’twenty also ’23 into 2024 was a real focus from us on ensuring that we had supply chain resilience across a number of sources. So to that extent, if we do see certain countries or certain commodities being tariff orientated, we have an ability to switch sourcing. And so we see a de minimis impact in that regard.

I think if you think about the two areas where there is likely to be some degree of impact is firstly in China. I’ll talk about that. China for us is about 15% to 17% of our revenue, of which half of which is bought, made and sold in China domestically for domestic China consumption. So it’s not subject to tariffs as we understand them at the moment. The other half is actually risen in our apparel business.

We make a lot of tags, labels and packaging for the apparel industry that go into garments manufactured in China, which are then exported predominantly to The United States and Europe, roughly about half in each proportion. And we actually see in that regard tariffs and implication of tariffs to China to be an advantage for us. We’ve been we’re the largest provider to the apparel industry around the world, And we’ve been helping brands in both North America and Europe and retailers for many years move sourcing around the world. So they move from China to Bangladesh or from India to Honduras. We have footprint in each one of those people.

And when that typically happens, we tend to disproportionately benefit because we have the largest scale and footprint. And we’ve been doing that with our brands and retailers for many years. So in some ways, a higher tariff policy on China has an opportunity for us to help those brands move further their volume into one of the other sourcing countries. The only area I see some direct potential impact is probably what we see overall is if tariffs become to such a point, for example, apparel, that the price point for apparel goes up fairly dramatically in any end market, then you’re likely to see some degree of volume decline or consumption decline. It’s a discretionary purchase at the end of the day.

Switching to the other side of the hemispheres in Mexico and in Canada. Most of our business in Mexico is again largely denominated, bought, sold and made on our materials business in Mexico. We have a very large and recently built intelligent labels facility in Mexico itself. We use that to service this hemisphere, both north and south. And knowing or thinking that there may be some tariff implication, we know that we have enough resilience in our network in other manufacturing facilities to move volume around.

And we actually have footprint actually in The U. S. That which largely a research center with some production capability. If we needed to, we could ramp that up. So we see maybe a transitory impact if those came to bear for Mexico.

And in Canada, we’re largely supplying the industry out of The United States. Should tariffs really take hold in that regard, we just see that as part of our normal process of managing our customers passing on those tariffs as they were as we roll them out as well. So overall, I’d say my bigger concern for us is not so much the direct impact of tariffs. I think we planned enough work around scenarios, the strength of our business in doing that, so we can address them over time. But more likely, is there going to be a broader consumption impact in certain markets that may drive volumes?

And at the end of the day, Jeff, I think our business is very anchored in consumer staples across most of our business. Largely non durable consumer staples, they tend to be more resilient, but they can be at times impact if tariffs drive further inflationary pressure as well.

Jeff Zukauskas, Analyst, JPMorgan: So in some of the industries that we cover, what we saw, especially in commodity plastics, is that in November and December of twenty twenty four, it turns out that there was very sharp upward trajectory in shipments of materials because people were worried about tariffs that might be imposed early in the new administration. When you look at the retail area, have you seen that? That is when you look at the shipments or the production around the world, have you seen sort of more rather than less because people have been preparing for tariffs? And then when you look at current demand conditions, what we’ve seen in some of the industries that we cover is maybe a slight softening. How do things look a little bit in retrospect?

And how do they look now for you?

Dion Stander, Chief Executive Officer, Avery Dennison: So I’d say in retrospect, I’ll use the example of when we went through the ’twenty three significant inventory build and then the detocking in ’twenty four. I think collectively, industries like ourselves and business like ourselves took a lot of learnings out of that, mostly around do we have a good enough handle on what’s handling end consumption, end CPG, for example, into retail and building resilience both from a data science perspective to understand outlook and then also just more insights from our at the moment see any significant industry wide build or down side at the moment. There’s always going to be pockets at the edges, a couple of customers here or there. But because we spread across almost all staples, we don’t necessarily see anything at the aggregate that would suggest there’s been dramatic inventory bills in advance. That includes even apparel as well.

Now as it relates to demand at the moment, I still think it’s a very dynamic environment and probably made more dynamic by some more of the discussions that are happening around policy but also the geopolitical stage. I will say from our perspective, March and the first quarter for us is such a big part of our earnings. It’s very difficult to call where it will be at the moment. But I will say based on everything I know now, we still will reiterate our full year guidance of September to 10/20. I think there may be pockets of some softness, but we’re also seeing some offsets as well.

And so I think as and when we have better clarity of what the policy true policy implications are going to be and how they manifest themselves, that will give us greater insight. If there are significant dislocations in the market, we’re going to be subject to those as well, Jeff.

Jeff Zukauskas, Analyst, JPMorgan: And so you said you most likely will reiterate your guide. We do reiterate. And you would and the first quarter for you seems more or less within your parameters of what you expected when you

Dion Stander, Chief Executive Officer, Avery Dennison: Again, March is such a determinant month. It’s such a larger month. Yes. But all things would suggest that it’s going to be through those parameters. And remember, what we said from a guidance perspective was the first quarter would be very similar to the first quarter last year.

And then as we rolled our programs and new programs, so bear, earnings would sort of grow as we went throughout the year. We also got some price hangover that came into the first quarter from the back end of last year. And so those factors combined, I think we’re as we see the March play out, we’ll have a much deeper sense of where the true business is going to be at.

Jeff Zukauskas, Analyst, JPMorgan: Okay. And from our point of view, we haven’t really seen any material inflation, at least on the chemical side, going into Avery. Have you seen any would you agree with that? And how about the paper side? How is that

Dion Stander, Chief Executive Officer, Avery Dennison: So I agree with you on the chemical side. I mean, there are always pockets of small things, Yes, exactly. And so forth that tend to go. But we’re not also seeing anything really on the paper side. We saw a little degree of inflation at the back end of last year, and that’s started to unwind just a small amount.

We didn’t necessarily take any action on that. There was some noise in the market, particularly as it relates to paper in Finland again. That has been resolved now at least at the macro level. It’s more of a broader economic strike that has been, I think, now averted. And we’d made a lot of plans around managing inventory ourselves and sourcing.

So at the moment, I don’t necessarily see the outlook that we started the year with, which is relatively a neutral inflationary year, not significantly high, not significantly low, was probably still going to be the case based on where I stand right now.

Jeff Zukauskas, Analyst, JPMorgan: You went through a period of time where your materials business really experienced very difficult volume comparisons and then volumes came back. Do you have a sense of where industry inventories are? Are we now at some more normal condition of growth in materials?

Dion Stander, Chief Executive Officer, Avery Dennison: I’d say as normal as I’ve seen it for the last probably three or four years overall, Jeff, and that includes inventory as well. There are always going to be elements, given the breadth of our portfolio, where some of the specialty products may be a little more held in inventory for customers or a little less. But typically across all of them, I think we’re probably in a more normal environment. And I see two elements. In our Materials business, as you know, 70% of our business is what we call in our base business.

This is kind of really denominated by what we call GDP overall. It’s a unit volume driven staple business overall. As GDP goes, typically we go now. We have two accelerants that we then layer on to our Materials business. So one is we have what we call our high value categories.

These are labeling decoration technologies that have utility beyond just the label. So think about industrial tapes used for mechanical to replace mechanical fastening for noise vibration, some durable labels that go in shipping in oil containers, specialty labels. A good example of which would be if you go into your supermarket and that clamshell that you used to buy with your lettuce or produce in now has one of those peelable films that you can peel back and reseal. We patent and developed that technology. So a different way of providing another application beyond just the value of the self adhesive grease.

And those categories tend to be sort of mid single digit growth for us. So when you put the two things together and then you also have for us because a large part of our business is in emerging markets, You naturally have got a higher GDP growth in some of those emerging markets. So overall, that business tends to be GDP plus And I don’t see any significant change as we sort of where we are from now and then as we move forward in that as well.

Jeff Zukauskas, Analyst, JPMorgan: One of the questions that our investors have is when they think about label demand for Avery, they wonder, is there more demand at physical locations for Avery labels? Or is it better that products are shipped through the mails? That is is it the e retailers that you would prefer? Or the physical retailers that you would prefer and sell?

Dion Stander, Chief Executive Officer, Avery Dennison: That’s a great question. We’re going to have a whole long projected discussion about the future of physical retail and whether it’s important or not. That’s a separate topic, I think. Right. But overall, what I would say is, at the end of the day, all physical products have to show up having two elements to them, to the consumer.

So one is it has to carry some form of brand equity. How else will you know if it’s a Tide bottle relative to any other I’m using as an example? So there’s one element of branding and brand equity. And the second element is information, where it’s come from, how it’s made, the content and so forth. And so for us, the way we think about it is whether an item goes into a retail environment or gets shipped directly to a consumer, it still carries roughly the same amount of label content materials.

They may be slightly bigger and smaller. There’s no real difference between private brand and national brands as well with some label content. And then the additional piece in this, the more actually the greater e commerce, the more packaging you’re sending, the more packaged labels or variable information labels we have. And so you have this other piece that comes into play on that side as well. Now for me, the biggest part of this is the future of where those are going.

There are currently what I would call analog labels in that sense. They are static. They only give you what you see and what you read. We know and I have a very firm belief that in the future, every physical item, no matter what it is, perhaps not in all my lifetime as I shared with you, is going to have a digital identity and digital life because it’s going to enable supply chain transparency from the moment it was born all the way through to retail, to consumption and to end of use disposal. And I think we then also bring that RFID technology to bear in those labels that we provide to all of the industries.

And that is a unique position that we hold. We are the world leader in what I think is the best sensing technology, UHF RFID. We’re the world leaders enabling decoration and information on physical items.

Jeff Zukauskas, Analyst, JPMorgan: So maybe we can turn a little bit to RFID. What people have noticed over time is that chip technology changes and there seem to be newer generations of chips that are being used. Do they improve the performance of your RFID inlays?

Dion Stander, Chief Executive Officer, Avery Dennison: There’s no doubt that improved chip performance matters at some point. Now there’s two things that are happening actually in the chip industry. If you think about the device that you use, those are very, very complex chips. What we’d call in semiconductor industry, the highest nodes of being able to build capability to hold information really. The older nodes have less capability.

UHF RFID actually requires less capability. What you’re really trying to carry is effectively a unique item number and then you associate or serialize that with the physical item that you’re doing, whichever it is at the same time. And increasingly, the future is going to put that information in the cloud. It’s the reason we built, I think, the world’s largest digital identity base as a software piece so that we could house all this information in there. And so as chip development continues, I think we’re going to see slightly improved performance at the end of the day.

But what actually makes a difference when it comes to use of RFID is the antenna that we put with it. So think of the RFID supply chain being first semiconductor manufacturing, the chip. It’s not us. We’re not going to build a fab. The second piece is you then take that chip and you put it onto an antenna.

So you design an antenna that is fit for purpose. It will either work in loosely hanging garments, tightly packed garments, protein, on shelf shipping. Each one of them has to be uniquely designed to read the most effectively that it can. We are the world leaders in both the design and our IP portfolio in that regard as well as the world’s low cost leader in manufacturing of those. And then you take that thing in the next node and you associate in the form factor, typically a tag, a label maybe on clothing, and you move to the next step, which is data management.

So you manage the two pieces of information together. We’re again the world leader in that. And then software, which we play a role in, and hardware and finally services. So for me, I think what’s going to matter is when we get to some of these increasingly complex categories, the design of the antenna or the whole chip and antenna together is going to be more and more important. And we know that because there are categories now in food right now that we are innovating around where we will be bringing more proprietary innovation to the market in this next year that will enable some of the categories that have not been possible to adopt because of that very limitation, irrespective of how good the chip is.

Jeff Zukauskas, Analyst, JPMorgan: So there’s a lot in what you said. You’ll be able to innovate in food. So when I think of food, I think of cold meat. Yes. So the innovation would have to do with temperature and wetness?

Dion Stander, Chief Executive Officer, Avery Dennison: No. So where we so we see food being adopted largely in what we will call the perishable category. Just think about the rim of the store, bakery, proteins, leafy greens, really. Anything that is highly perishable and involves and involves an enormous amount of labor to identify what’s best before date, what’s close, that’s where we’re seeing a lot of traction. And that’s where, for example, with the bakery pilot or the bakery rollout that we have with Kroger right now.

But some of those categories are very, very challenging to read using UHF RFID. I don’t want to go into the technical detail, but you require a backscatter approach. You need to be able to activate the device because it’s a passive device, it doesn’t have a battery, using the energy from a radio wave on a reader. It wakes up, it tells you something to do with that item and it sends it back. Depending on the complexity of what you put that label or tag onto, it can significantly interfere with that radio wave performance.

And so if you have things that are very high, I’ll give you an example, dielectric components, so meat is very water intensive, very dense. Be able to try and read something off something that has a lot of water and very dense is very difficult from a physics perspective. And some of our innovation is in solving how we do that and enable that. I’ll give you another example. We knew probably five years ago, we had a conviction that food at some stage were going protein is the biggest part of food, is the most valuable part.

60% of protein probably when it gets home to the home is put into the freezer and then it gets de thawed or thawed through a microwave typically to be used. You can’t have something kind of a semiconductor device that goes into microwave that will explode because it overheats. So we, three years ago, launched the world’s first RFID safe microwavable tag, knowing at some point that protein would come along as well. So those are examples of how we bring innovation to bear to help activate and amplify a new category.

Jeff Zukauskas, Analyst, JPMorgan: So the innovation is around

Dion Stander, Chief Executive Officer, Avery Dennison: The inlets. There’s innovation around meats. There’s innovation around density of items on the shelf. There’s innovation around ability to read very quickly from a distance. That’s another piece of that.

And this is a core strength of ours. But we’re also continuing to learn that we’ve invested quite a lot in artificial intelligence and how we design these typically I’ll give an example. Typically, to make an inlay for a specific purpose, it takes six to eight weeks. You have to design it, then you have to test it, then you have to physically replicate it, then you have to test it again. We’re using an AI tool that we’ve built now to be able to shorten that cycle dramatically by 80% so we can actually get to market quicker with the testing process.

Jeff Zukauskas, Analyst, JPMorgan: So again, there’s so many things we can touch on. So some people conceptualize the RFID industry as really a commodity industry. And what they do is they worry that maybe there will be too much capacity. And so if I understand what you’re saying, the different RFID categories may have their own dynamics and there may be proprietary features of one kind or another that different providers have that make the industry a little bit more complex.

Dion Stander, Chief Executive Officer, Avery Dennison: I think your last point is right, Jeff. The industry will be complex. Like any technology over time, I think at some point in time, there will be an element of it which will be have more of a commoditized feel, but a large part of it is still for at least for the next decade is going to be more differentiated than that. And that’s going to vary by individual product type and by segment type. So I’ll give an example.

If you’re as I described that supply chain, that node of RFID, most programs work because you’re needing to do two things. You’re needing to have something that’s designed for its end use, specifically, let’s say, on hanging garments or protein. And you’re also needing to manage and associate data through the supply chain, so you capture every event. In its best expression, people like ourselves can put tags and labels at the source of an item, whether it’s apparel or food. We can manage the data around that, which we hold in the cloud.

And then as retailers or brands and consumers view that they can interact and write updates to that unique item, where it was in the port of shipping, how it was used, etcetera. And so you have a sort of a you have both a suite of I’m bringing a physical product and I’m having digital solutions added on top. That’s at the upper end of what I call the complexity spectrum. At the lower end, it might just be I’m going to have a simple relatively simple RFID label. It has to still be designed for a purpose, and you’re likely to see more what I would what you term commoditization in those areas.

But I’ll give you a real example of even how that will evolve. With UPS, we launched that program with them to resolve misorts and labor efficiency in their last mile fulfillment centers. The point at which all these packages come in and they go into the right truck and they were having miss sorts in one in 400, which doesn’t sound like a great problem, but you ship 20 plus million packages a day. Each package costs more than $20 to bring back and resend that. It’s an enormous amount of money.

So we moved that from help with them from one in 400 to one in 800. But that it’s a relatively simplified product in that regard, designed for specific purpose, but we’re not managing any of the data as an example. They are moving in their journey, and this is public knowledge, to the smart van. So they use it on the van as well and into the smart driver. The person gets out, makes better sense of it.

But ultimately, their destination is to go to what they call smart customer, which is the source again. So not only their stores where people walk into hand in the package, but corporate customers. The analogy I’ve used is it’s like tagging that apparel item at when it was made or the food item in the farm. When you go back to source, you need to start managing the data. And so what might be a seem like a more simplified product now for UPS, at some point, will become a much more complex solution that we can again step into.

So I think it’s going to wax and wane across times. And certain elements of segments are going to be more complex and others are going to be more simple. But our great strength is being able to do that across all of these spectrums. And I will hasten to say, at above across all of them, above average segment margins. Okay.

Jeff Zukauskas, Analyst, JPMorgan: So to go back to the food application for a moment. So what Kroger began with were baked goods. And I think the Avery shareholder base side and thought, okay, that’s it. So it sounds like there’s technology development that’s going on. And as that technology development accelerates and becomes more of a reality, then the opportunities at Kroger or at other food applications become greater.

But maybe one of the limiting factors is the state of the technology as it was over the past six months.

Dion Stander, Chief Executive Officer, Avery Dennison: No, I don’t think the technology is a limiting factor. And we’ve been very clear even, and Kroger has been very clear on this. Bakery is just the first step for them. They want to do ultimately, our journey and roadmap for them is to do all perishable items, whether it’s proteins or ultimately, at the end stage, leafy greens as well. It was important for us to make sure that Kroger were visible in the first because at the end of the day, it’s not a customer success that drives an industry to adopt.

It is a ubiquitous business case that applies across the industry, which is what we saw in UPS and we’re now going to see in Kroger. And as a consequence of that, I can tell you now, we have a lot of inbound and ongoing pilots and trials with other grocers wanting to take the same approach. And now you’re into, okay, can you what’s the rollout schedule look like? That’s no different to any other. Is it store by store?

Is it geography? Is it product? And as we’ve seen the history we’ve seen at least in apparel and general merchandise, you start in one area and ultimately you move your way through the whole store. And that’s typically what we’ve seen across, at least in the apparel side and starting to see in the general merchandise side as well. The technology is not a limitation.

There are unique pieces that we, people like ourselves, have to innovate around. But at the price point where it is and the scale of the opportunity, I think there is an enormous growth industry ahead of us. I think I’ve consistently said apparel is an addressable market, about 40,000,000,000 units or only 40% penetrated. Logistics, just the five or six logistic players is 65,000,000,000 to 70,000,000,000 units. We have a ubiquitous use case now, and we’re in discussions of pilots with every one of the others as well.

And food is 200,000,000,000 units plus, and that’s just imperishable items. So there’s a long runway ahead of this.

Jeff Zukauskas, Analyst, JPMorgan: So the investor in Avery is sometimes fretful because the investor will look at the price dynamic in RFID. And the price dynamic is difficult for an outside observer to make out because the retail tags are have higher price points than, for example, the logistics tags. So when you look at the EBIT per tag, per category, as the chip prices fall, does the EBIT per tag per category rise or fall or stay the same?

Dion Stander, Chief Executive Officer, Avery Dennison: So I would characterize

Jeff Zukauskas, Analyst, JPMorgan: If you understand what

Dion Stander, Chief Executive Officer, Avery Dennison: No, absolutely. I know what you’re trying to drive towards. So let me maybe answer it in this way. And if it doesn’t address your question, please push back. What we see is on the spectrum, we see price points all the way from kind of $0.02 0 point 0 3 dollars all the way up to $0.1 plus depending on complexity and use.

What we do know for ourselves is across those, broadly, we have very similar margin profiles across all of them. The more simplified a product is, the more scale volume is, the less other supporting infrastructure we put into it, and we have scale adoption of our assets as well. And so you’re able to generate very consistent margins across all of them. The per unit EBIT number may be slightly different clearly given the retail price. And I think as the industry evolves, we’re going to continue to see products move up and down that scale.

So as an example, during this last year, we brought in apparel for Zara a loss prevention tag to replace their previous tag, which is largely focused on imagery accuracy. The significant benefit to them, unique IP, and we’re able to command a much greater value capture of that particular product. And we see that as another entry route into expanding apparel further. So at a unit level, all I will say is we tend to see very similar margin profiles. And across all of them, they are actually above our segment average overall.

That includes us consistently continuing to lean forward and invest both in capacity, in people and in innovation. Our objective at the end of the day as a company is to deliver GDP plus growth and top quartile returns. If you look at our Intelligent Labels platform, our objective is to say that as we move forward, we want to maintain our greater than market average share overall. So continue to be 50% plus of every market and every customer we participate in. And that’s important to us because as we activate and drive these new segments, logistics, we’re going to disproportionately benefit from that given the largest player in the market as well.

Jeff Zukauskas, Analyst, JPMorgan: So is the conclusion that we should draw that while chip prices go down and while the prices of individual RFID tags in the individual categories go down.

Dion Stander, Chief Executive Officer, Avery Dennison: Up and down depending on what the application is.

Jeff Zukauskas, Analyst, JPMorgan: Yes, up and that in general, that’s not something that penalizes Avery. It’s something that perhaps enhances the growth rate and the margins stay relatively good.

Dion Stander, Chief Executive Officer, Avery Dennison: That’s the takeout that would have. And I would say as well that two things are going to happen. One of the reasons why we have this drive and one of our core strategic pillars is to sort of expand what we call our high value categories. Intelligent label is just one of those because they’re categories that have higher growth, higher margin and greater differentiation. And by definition, if we grow those at a much higher rate as a part of our portfolio, we’re going to get natural mix margin accretion.

We see that. And that’s where Intelligent Labels will play into that as well. I think on the individual Intelligent Labels piece, we have seen this is not immune to any other technology. We’ve seen kind of low- to mid single digit price reductions over time. Our ability to generate productivity, which is one of our great strengths, more than offsets that, and we’re able to drive.

So I’ll give you a real example of that. In the last five or seven, last six or so years, we have, through our engineering capability and our productivity, been able to half the rate of capital intensity per billion units of RFID that we produce because we’re able to bring from our materials business the ability and the capability to do large scale roll to roll manufacturing. Think about self adhesive paper and film, we brought that same capability into manufacturing billions and billions of inlays as well.

Jeff Zukauskas, Analyst, JPMorgan: You make 23,000,000,000 units?

Dion Stander, Chief Executive Officer, Avery Dennison: It’s in that ballpark.

Jeff Zukauskas, Analyst, JPMorgan: So when we thank you for that. When we think about the UPS experience that you’ve had, it seems to be the case that you had all of the UPS business and then at a point in time, other people had UPS business. What like, I’m not trying to pry into exactly that particular customer, but to the general structure where Avery goes and captures a piece of certain amount of time, is it a year, is it two years that a certain amount leaks out? And how do we think about how much leaks out and why it happens and what the general commercial arrangements are?

Dion Stander, Chief Executive Officer, Avery Dennison: So I would say because we’ve been doing this for quite some time, particularly in apparel, now in logistics and starting in food, our assumption is always that when we start a program, because we are, if you thought about those nodes that are described, we’re kind of the one throat to choke and really do that at scale globally with efficacy. We tend to be the people. I can’t think of a customer that start a program where we haven’t been the person to start it exclusively with them. They want to start something. Bear in mind, the use of this is not just another label.

It’s a piece of technology that gets deployed. It has cultural implications, cultural adoption implications in store in the supply chain, which we help with customers with. So typically, we start, we’re typically exclusive. And then for a period, and it varies by customer but by segment, we remain an exclusive provider. We always assume at some point there’s going to be what we would just call share normalization.

Customers may decide they want a secondary supplier or third supplier for a small proportion

Jeff Zukauskas, Analyst, JPMorgan: for

Dion Stander, Chief Executive Officer, Avery Dennison: risk amelioration, a normal procurement approach in the company. We knew with that particular customer mentioned that at some point in that kind of second year, we’d also see that as well brought to bear. And I go back to my standpoint. My aim and our company aim is to make sure that we maintain our majority share no matter what happens. And I’ll give you an example.

In our apparel industry, we’ve had customers that have been with us for more than ten years, RFID customers. We are still the vast majority share provider, 70%, eighty %, that type of thing, because for two reasons, one of which is when things are more challenging, they need somebody that can rely on to really move the velocity of the supply chain, move the innovation platform, bring them innovation. And the second piece is that we’ve been able to actually continually refresh the value creation we can provide to them. The Inditex example is just a good one of that. That was a very program where we had more than the majority share, but being able to bring a new technology for loss prevention enabled us to capture, again, a very, very, very high percentage of their share.

And I suspect in across all these industries here, we’re going to see that. Our outcome with our logistics customers, we are still the vast majority share as we go through this year.

Jeff Zukauskas, Analyst, JPMorgan: So for the decision that’s being made by the customer, how do they make that decision? That is, do they go to 60% or 80% or 40%? Do they give everybody alternatives? They say, if you want to hold on to the business, like these are the price points. Is it very much a negotiated?

Dion Stander, Chief Executive Officer, Avery Dennison: It’s typically, we try to have arrangements multiyear, three to five years depending.

Jeff Zukauskas, Analyst, JPMorgan: And

Dion Stander, Chief Executive Officer, Avery Dennison: we factor some of that share normalization into it. The reasons they go through them, I think, are more to do with risk amelioration than anything else. I think there’s very few organizations always feel like comfortable just having one single supplier. We’re not dissimilar ourselves when we think about our own supply base. But what you’re trying to rely on, at least I can only speak for ourselves, we’re looking for strategic partners that can drive the vast majority of our business.

And that’s typically where we end up as well with our customers in that regard.

Jeff Zukauskas, Analyst, JPMorgan: So maybe as a last question, there’s an Arkansas retailer of above average size. And there, it seems they have an initiative to use more RFID tags across their footprint. Is this a larger dynamic that’s important to Avery in 2025?

Dion Stander, Chief Executive Officer, Avery Dennison: So I earlier spoke about, Jeff, what we’re seeing in apparel general merchandise is this trend to the whole store, ultimately the whole store. And there’s a very good reason why. If you for some of you who are in The United States over here, if you go to a Unico store, if you happen to have a Unico store, you go to

Jeff Zukauskas, Analyst, JPMorgan: the We do. We all do, and it doesn’t work perfectly at Uniqlo. They’re always scanning at the end with the duplicate items.

Dion Stander, Chief Executive Officer, Avery Dennison: All Uniqlo is tagged every item. If you happen to be in Europe, go to Decathlon store. That’s one of our customers. They are a sporting retailer. They tag every item, even a protein bar or chocolate bar.

Even though that bar mainly cost the tag relative to the process, it doesn’t seem like it make economic sense. But the reality is, and we’re going to see this, and this is what you’re seeing for that retailer you talked about, general retailers as well. If you’re able to leverage a technology to take inventory much quicker to provide a higher level of associate or store labor productivity, but this part of the store doesn’t have that, now you’re running effectively two operating systems for your store labor. You’re running one that’s highly efficient, where people like what they do, and you’re running one where I’m still using an old clipboard to go and check things. At some point, retailers have got to the point of saying, okay, if I get enough of my store tag where I can get the efficiency and the ROI on the actual item, then I don’t want to run a second approach in my store.

And I just want to go. And that’s what Uniqlo have done. That’s what the Capital are doing. I strongly believe in general merchandise, we will get there as well.

Jeff Zukauskas, Analyst, JPMorgan: Okay.

Dion Stander, Chief Executive Officer, Avery Dennison: It also allows for the final thing, which is complete self checkout should you choose to do that.

Jeff Zukauskas, Analyst, JPMorgan: All right. Thank you. Sure. Go ahead.

Dion Stander, Chief Executive Officer, Avery Dennison: It seems so much that you are driven by innovation, No, it’s both actually. I mean, I will tell you, we’re celebrating our ninetieth year this year, just to show you don’t get to survive ninety years unless you’re really focused on innovation and the customer. And so we do it both. We go out in the market and we listen to customers, but we also look at inherently our capabilities and what we can deliver out of that. The protein tag was a good one.

We knew no customers asking for it. No market adoption was required. We sensed at a point that being able to do so would happen. Right. But can you Yes.

Do you self develop it or

Unidentified speaker: are they coming out of some school?

Dion Stander, Chief Executive Officer, Avery Dennison: Where are they coming from? Most of it comes out of either technology or universities or colleges at the high end. We have a lot of PhDs. We’re in material science business at heart and the digital identification solutions was on the other side. One of the things that we also do is when we do M and A, and we only do that as an executioner strategy, to be clear.

When we do an M and A, one of the key factors we look at is the talent in the organization. What are we going to get? And particularly around can we help get transformative talent in gaps that we already have as well, so.

Jeff Zukauskas, Analyst, JPMorgan: Okay, good. Thank you very much for your attention. Thank you for coming.

Dion Stander, Chief Executive Officer, Avery Dennison: Thank you very much, Geoff. Appreciate it. Thank you, everybody. Everybody.

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