Avery Dennison NYSE: AVY reported third-quarter 2026 results that exceeded its expectations, supported by a slower-than-anticipated pace of customer inventory destocking in its Materials Group and operational execution across the business.
Adjusted earnings per share rose 2% year over year to $2.42, while reported sales increased 5% to $2.3 billion. Organic sales grew 4%, aided by low-single-digit price realization and volume-mix growth, Chief Financial Officer Greg Lovins said. The Taylor Adhesives acquisition contributed more than one percentage point to reported sales growth.
President and Chief Executive Officer Deon Stander said inventory management reduced third-quarter sales growth by an estimated two percentage points and adjusted EPS by about $0.15. Excluding that effect, the company estimated underlying organic sales growth of roughly 6% and adjusted EPS growth of about 8%.
Materials and Solutions results
Materials Group sales rose 8.5% to $1.6 billion, including 5% organic growth. Customer destocking represented an approximately three-point headwind to the segment’s organic growth, Lovins said. Both high-value and base categories posted mid-single-digit organic growth, with high-value growth led by specialty and durable labels and performance materials.
Materials Group adjusted EBITDA increased slightly from the prior year, though its adjusted EBITDA margin declined about one percentage point to 16.4%. Lovins attributed the decline primarily to the percentage-margin impact of pricing actions taken to offset raw-material inflation and higher employee-related costs. Those factors more than offset productivity savings.
Stander said destocking was largely concentrated in Europe and parts of Asia. The company said it expects most of the remaining customer inventory unwind to occur in Europe during the fourth quarter and to be largely completed by year-end.
Solutions Group reported sales of $687 million, down 1.8%, while organic sales increased 1%. Base categories grew at a low-single-digit rate, while high-value categories were comparable with the prior-year period. Embelex grew at a mid-single-digit rate despite comparisons against a World Cup-related benefit in the prior year, while Vestcom grew low single digits.
Solutions Group adjusted EBITDA increased year over year and its adjusted EBITDA margin expanded 80 basis points to 17.8%, as productivity initiatives more than offset higher employee-related expenses. Lovins said a majority of the company’s restructuring benefits have been generated in Solutions Group, and management continues to see opportunities for margin improvement in the business.
Intelligent Labels developments
Enterprise-wide Intelligent Labels sales increased at a low-single-digit rate. Sales in apparel and general retail rose about 10%, driven by program expansions and a recovery in general retail, according to Stander. He said Intelligent Labels apparel sales themselves increased roughly double digits during the quarter.
Food-category adoption continued to gain traction as Avery Dennison ramped another large grocery customer, expanded pilots, and added a third large grocer in the early stages of commercial rollout. Stander said the company expects that rollout to accelerate through the fourth quarter and into 2027.
The commercial rollout of the company’s fresh-food program with Walmart is now expected to ramp during 2027, rather than in the second half of 2026. Stander said the timing shift reflects the nature of large-scale deployments and that Walmart’s leadership reaffirmed its commitment to the technology.
Logistics-related Intelligent Labels sales declined by double digits as the company faced normalization from outsized share gains in 2025 and softer customer demand. Management said it continues to expand pilots with logistics providers and expects the impact from share normalization at its largest customer to be largely mitigated as it moves through the current cycle.
Guidance, cash flow and capital allocation
Avery Dennison narrowed its full-year adjusted EPS guidance range to $10.10 to $10.24 and slightly raised the midpoint. The midpoint implies approximately 7% year-over-year adjusted EPS growth, the company said.
Management expects full-year reported sales growth of approximately 5.5%, including organic sales growth of about 3.5%, roughly 1.5 percentage points from currency translation and about one percentage point from the Taylor Adhesives acquisition. The company expects a calendar adjustment to reduce sales growth by about 40 basis points for the year, with an approximately 1.5% fourth-quarter sales headwind.
Lovins said the company expects more than $65 million of restructuring savings for 2026 and estimated that actions taken this year could provide roughly $0.20 of year-over-year benefit in 2027. The company expects capital expenditures of approximately $240 million this year and targets free-cash-flow conversion above 100% of net income.
Third-quarter adjusted free cash flow was $246 million, bringing year-to-date adjusted free cash flow to $716 million. Net debt to adjusted EBITDA improved to 2.2 times. Avery Dennison returned approximately $135 million to shareholders during the quarter through $75 million of dividends and $60 million of share repurchases, bringing year-to-date shareholder returns to more than $480 million.
The company also announced that Helen Sheirbon will become president of Solutions Group effective Nov. 3. Sheirbon most recently served as senior vice president and chief operating officer of Global HP Solutions.
About Avery Dennison (NYSE:AVY)
Avery Dennison Corporation NYSE: AVY is a global materials science and manufacturing company that develops and produces labeling, packaging, graphic, and functional materials. Its products are used by businesses across industries including consumer goods, retail, logistics, apparel, automotive, healthcare, and industrial manufacturing.
The company's offerings include pressure-sensitive labels and label materials, adhesives, industrial and specialty tapes, graphic films, and packaging materials.
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