Q3 2021 Avery Dennison Corp Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to Avery Dennison earnings Conference call for the third quarter ended on October 2nd 2021 during.
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I would now like to turn the conference over to John Edley, Avery Dennison as head of Investor Relations. Please go ahead Sir.
Thank you France. 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 schedules, a four to eight or 10 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 estimate 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 <unk>, Chairman, President and Chief Executive Officer, and Greg Lovins, Senior Vice President and Chief Financial Officer.
I'll now turn the call over to Mitch.
Thanks, John and good day, everyone.
I'm pleased to report, we delivered another strong quarter or.
Our two primary businesses achieved impressive top and bottomline growth and momentum in our intelligent labels platform continues.
We are in a higher demand environment that comes at a time of continued and increasing challenges.
The ramping up of Covid infections and restrictions in some countries.
<unk> supply chain challenges and additional inflationary pressures are taxing the industry, our customers and our teams.
The biggest challenges have been in LG in North America, due to raw material shortages in labor and capacity constraints.
And in Rbis, Vietnam, where output was significantly constrained in the quarter due to COVID-19 restrictions.
While we are encouraged by recent trends in these businesses as we've been able to increase output in recent weeks to supply chain constraints continue.
As for inflation pressures continued to increase.
We previously expected some abatement in raw material input costs towards the end of the year, whereas we now expect additional inflation in Q4 as well as Q1 of next year.
Now for context on the magnitude of the inflation in our materials businesses alone we will be exiting this year with annualized inflation of more than $600 million.
That's a nearly 20% increase our rate we have not seen in decades.
Thus in the midst of another round of price increases.
Despite these hurdles we continue to achieve impressive results. The team is doing a tremendous job managing through these compounding challenges focusing on keeping our teams safe and delivering for our customers.
Now a brief recap of the segments.
Label, and graphic materials posted strong top line growth for the quarter over count coming the challenges I just highlighted as demand for consumer package goods and E. Commerce trends continued to drive strong volume growth in our label and packaging materials business, while growth in our graphic and reflective solutions business continues to rebound.
<unk> profitability remained strong the margins were down from last year due to the increasing inflationary headwinds and higher costs in the quarter from the supply chain constraints.
Given the increasing inflationary pressures, we have redoubled our efforts on material reengineering and as I mentioned previously are raising prices again.
Retail branding and information solutions delivered strong revenue growth in the quarter and continued to expand margins significantly.
The segment grew 22% on a constant currency basis, and 14% organically driven by strength in both high value product categories as well as our core apparel business.
Impressive performance despite the significant constraint in South Asia, where we have major manufacturing hubs once again, demonstrating the advantages of our global manufacturing network.
Yeah.
Intelligent label sales enterprise wide, we're up 15% in the quarter and we are on track for approximately 30% organic growth for the year versus 2020, and 40% versus 2019.
Towards the higher end of our long term target.
As expected the continued strong growth in our RFID business was primarily driven by apparel.
Applications outside of apparel, particularly food and logistics.
Faster than the average, they're obviously off of a small base.
And in Q3, we also closed the acquisition of best Com business that further expands our position in high value categories and has the potential to further advance our label strategy.
In the industrial and healthcare materials segment sales continue to rebound off prior year lows.
Were up relative to 2019 by 11% on a constant currency basis.
As for margins they are down as inflationary pressures.
Yep.
Costs from supply chain disruptions have impacted this segment to a greater degree than L. G M.
Overall I am pleased with the progress, we're making as a company and our long term strategies, while also executing in the near term.
We are providing superior service to our customers despite the challenging environment keeping.
Keeping our teams safe and engaged.
Ramping up investments for the long term.
<unk>, we continue to deliver for our shareholders.
Given our strong performance in the quarter, we have raised our outlook for the year now anticipating earnings growth of roughly 25% over last year's record and are on track to achieve all of our five year companywide goals that we established in early 2017.
With that I'll now hand, it over to Greg Alright.
Thanks, Mitch and Hello, everybody.
We delivered another strong quarter with adjusted earnings per share of $2 14.
Up 12% over prior year and up 29% compared to 2019.
Driven by significant revenue growth and strong margins.
Sales were up 17% ex currency and 14% on an organic basis compared to prior year.
Even by strong volume across the portfolio and higher prices.
We also delivered strong growth compared to 2019.
With organic sales up 10% versus two years ago.
As Mitch mentioned, our supply chain remain tight and input costs have continued to rise.
Both raw material and freight inflation were above our expectations for the quarter and we've continued to rise as we enter the fourth quarter.
We continue to address the cost increases through a combination of product reengineering and pricing.
And have announced additional price increases in most of our businesses and regions across the world.
Despite the impact of inflation supply chain disruptions and the headwind of last year's temporary cost reduction actions, we delivered a strong adjusted EBITDA margin of 15, 4%.
Down 70 basis points from last year, and up 120 basis points compared to 2019.
Turning to cash generation and allocation year to date, we've generated $639 million of free cash flow.
With $251 million in the third quarter, that's up significantly compared to previous years.
Driven by our strong net income growth and working capital productivity.
And we closed the <unk> acquisition in the quarter for total purchase price of roughly $145 billion.
To fund the acquisition, we used the net proceeds from an $800 million senior note offering in August along with cash and commercial paper.
Additionally, in the first three quarters of the year, we returned a total of $290 million in cash to shareholders.
Through $164 million in dividends and the repurchase of over 700000 shares Adam.
Aggregate cost of $126 million.
Our balance sheet continues to be strong with a net debt to adjusted EBITDA ratio of two three at quarter end at the bottom end of our long term target leverage range.
This gives us significant capacity to continue the disciplined execution of our capital allocation strategy.
Now turning to the segment results label and graphic materials sales were up 15% ex currency and 14% on an organic basis.
Driven by strong volume and roughly five points from higher prices.
Compared to 2019 sales were up 11% on an organic basis.
Label and packaging materials sales were up roughly 15% organically with strong volume growth in both the high value product categories and the base business.
Graphics, and reflective sales were up 11% organically.
And looking at the segments organic sales growth in the quarter by region North America sales were up low double digits. Despite raw material availability challenges that have continued to create extended lead times.
Western Europe grew more than 20%, partially due to easier comps given the impact of the pandemic. We saw in Q3 last year.
With that said the business was still up double digits versus 2019.
And overall emerging market sales were up low double digits in the quarter.
With double digit growth in both the ASEAN and Latin America, and mid single digit growth in China.
While <unk> profitability remained strong adjusted EBITDA margin decreased from last year to 15, 9%.
This was partially driven by the increased inflationary pressures and the impact of supply constraints.
Which led to some incremental cost in the quarter, such as expedited freights and overtime to minimize disruptions to customers.
And as you know our goals are to deliver GDP plus growth and top quartile returns on capital.
With a focus on driving E D a.
Our approach to price increases in material reengineering is designed to do just that.
As we look to set higher material costs on a dollar basis by the end of an inflationary cycle.
However, the revenue base from such price increases alone, especially at the magnitude we are seeing in the back half of this year.
It reduces the operating margin on a percentage base.
With no impact to returns.
This pricing impact led to a reduction in operating margin by roughly three quarters of a point in the third quarter.
Shifting now to retail branding and information solutions Rbis sales were up 22% ex currency and 14% on an organic basis.
As growth remained strong in both the high value categories and the base business doing.
Due in part to lower prior year comps.
Compared to 2019 organic growth was up 9%.
The apparel business saw particular strength in the performance and premium channels and continued double digit growth and external embellishments.
As Mitch mentioned intelligent label sales were up organically roughly 15%.
And up about 40% compared to 2019.
Adjusted operating margin for the segment increased to 13, 8%.
As the benefits from higher volume and productivity more than offset the headwind from prior year temporary cost reduction actions.
Employee related costs and growth investments.
The RBS team is continuing to deliver in this high growth high margin business.
Turning to the industrial and healthcare materials segment sales increased 20% ex currency and 15% on an organic basis.
Reflecting strong growth in both the industrial and healthcare categories.
Compared to 2019 sales were up 6% on an organic basis.
Adjusted operating margin decreased to roughly 10% as the benefit from higher volume was more than offset by the net impact of pricing.
Higher freight and raw material costs and higher employee related costs.
Freight in particular had an outsized impact on IH them in the quarter given the significant increases in global shipping costs.
Now shifting to our outlook for 2021, we have raised our guidance for adjusted earnings per share to be between $8 $88 95.
Roughly 8% increase to the midpoint of the range.
And we now anticipate roughly 15% organic sales growth for the full year.
At the high end of our previous range.
Selecting strong volume growth and the impact from higher prices.
We've outlined some of the key the other key contributing factors to this guidance on slide 12 of our supplemental presentation materials.
In particular, the impact of the extra week in the fourth quarter of 2020 and.
And the resulting calendar shift will be a headwind to reported sales growth of roughly eight points in the fourth quarter of this year.
With a roughly 30 EPS headwind.
The anticipated tailwind from currency translation is now $30 million in operating income for the full year based on current rates.
Most of this benefit came in the first half, let's create a headwind as we go into 2022, if rates stay where they are now.
And we expect a modest EPS benefit from best come in 2021.
Net of purchase accounting amortization, which we estimate to be nearly $60 million on an annualized basis.
And net of financing costs.
She is a target over $700 million of free cash flow this year up significantly from previous years.
In summary, we delivered another strong quarter in a challenging environment.
We remain on track to deliver on our long term objectives to achieve GDP plus growth and top quartile returns on capital, which together drive sustained growth in EMEA.
We will now open up the call for your questions.
Thank you.
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Our first question is from Ghansham Panjabi with Robert W. Baird <unk> Company. Please go ahead.
Hey, guys. Good morning, Thanks for all the detail.
I guess, starting with Rbis, and some of the production issues a lot of your customers have talked about.
Consumer site in Vietnam in Southeast Asia more broadly.
Would you still have to sort of able to navigate through that dynamic do you start to see sort of a flex across your different production footprints et cetera, as order flow moved or just more insight on that dynamic would be helpful.
Yeah, absolutely ghansham. So it's exactly what you just said so it was.
Vietnam is what's getting a lot of the press and headlines are definitely had the biggest impact.
But throughout the pandemic there has actually been different regions that have been impacted more than others and we've been flexing the global manufacturing network to help offset that and so specifically here if youre asking about Vietnam.
We are able to leverage specifically, China to be able to service that demand.
You did <unk> still.
<unk> impacted growth by a couple of points overall.
Question is how much of that is just and demand that won't happen now because the retailers and apparel brand owners won't.
Be able to fulfill more and consumer demand or not but the impact.
The impact of a couple of points is what we estimate.
But we were able to it would have been larger than that had we not sourced from China.
Got it and then just for my second question on inflation.
Inflation has been building all year for many different supply chains, including yours, I guess, what surprised you incrementally over the past three months with specific categories in.
Which regions are you seeing the most inflation and also the <unk> <unk> benefit from any sort of material pre buy as customers kind of position.
Incremental inflation thanks.
Yeah. Thanks, Ghansham overall, I think we've seen inflation continue to increase really across the category. So I don't think it's euro and in one particular place we've seen chemicals adhesives and so on the resin components continue to increase and then I think in the third quarter as we expected we started to see some increase in paper, particularly in Europe.
We've seen we've seen the acceleration in the third quarter and into the fourth quarter here really across the different component categories. I think are the biggest the biggest regions, where we've seen the largest inflation is probably both in North America, and Europe and North America really started late last year as you recall with some of the chemical increases and that's continued to grow as we move through this year and then euro.
Continued shortly after that with with paper really kicking in here in the third quarter its been the biggest sequential increase.
And as far as pretty buys on your question on that we Didnt see we don't really detect much pre buys in Q3 from Q4.
We did accelerate and get a bit more benefit from pricing in the quarter purely because we just accelerated some actions there.
As we look at within Q4, it's hard to get a good read on the fourth quarter, just because of the price increases we've announced in some regions for November one which is causing some pre buys here in October but it doesn't have any inter quarter.
Movements, if you really ghansham.
Got it thanks, so much.
Our next question is from Anthony Pettinari with Citigroup. Please go ahead.
Good morning.
Is there a way to think about the timeline for possibly rebalancing price cost.
Inflation youre seeing in the pricing actions you've taken and then just understanding the market is extremely dynamic and it's tough to say is there anything that you could say about how your LTM market share position is going to be fair. It in the current environment.
Sure.
Yeah. So on your first question and Anthony I think when we look at.
Go I think our communication to you was that we thought by the end of the year, we we'd be looking to close the price inflation gap essentially and we've continued to see accelerating inflation. So you know we're looking at somewhere in the low to mid single digit further equation inflation from Q3 to Q4.
And now we're implementing additional pricing action. So I think our view is that it takes us a few months three to four months to the past pricing or pre engineered materials to take cost out to manage the inflation. So when we start to see inflation stabilize three or four months. After that it's probably when do you expect to be able to cover that on an ongoing basis.
And from your share question. So overall markets remained relatively strong in North America and Europe.
And from a shared spectrum.
Pretty stable, we don't have share data yet the most recent we think it's relatively flat.
Some regions and up maybe up sequentially and other regions just stable.
Specifically, north American we'd called out in the past.
Seen some sequential improvement, we believe but we're not quite where we want to be yet.
We will be there in the next couple of quarters.
Okay. That's helpful.
Is it possible to specified.
The financial or the volume impact of the North American labor issues that you referenced.
Are those primarily primarily with a group of customers or within Avery and do those kind of linger and <unk> are they better or worse exiting October versus what you saw in <unk>.
Yes.
It's more about just the ability to meet surges in demand and so the ability to flex when demand suddenly.
You see peaks temporarily and so forth. So it's primarily impacted our service lead times.
Which are consistent with what we're seeing across the industry, how are lead times being longer than they usually are which is what the whole industry is seeing.
<unk>.
That's what the driver is really so it's not really a particular number yes, we've got a bigger backlog, we don't know how much of that is true.
To end demand versus maybe inventory building or people getting into Q just to make sure they've got an allocation of future manufacturing so.
Overall I think the key message here is.
The markets remain.
The growth in the end markets, particularly in North America, and Europe. So the gains that we the market achieved last year. When the pandemic first hit have been held and then we're seeing incremental growth from there and that is putting a bit of a strain on the lead times across the industry.
Okay. That's helpful I'll turn it over.
Okay.
Our next question is from George Staphos with Bank of America Securities. Please go ahead.
Thanks for taking my question Hi, guys. Good morning, how are you doing well thanks for the details.
First question I wanted to ask is around what you're doing to offset inflation.
Good companies play to their strengths and advantages during periods of stress.
To gain position to gain share.
You know as you think about L. G M versus Rbis, and you think about the broad buckets.
The engineering and cost versus commercial in price versus I don't know new products and innovation, how would you say that.
That sort of mix varies in terms of how you are.
Behavior in the market LG EM versus Rbis.
I know <unk> is heavy on the on the re formulation and pricing and then the second question related to it is is there a horizon is there a practical limit.
Where you really can't do any further reformulation or certainly the incremental benefit is and what we've been seeing this year than in prior years, which should mean that you'd have to raise pricing further and is there a practical limit in terms of how much more pricing you can get.
Before you would worry about the strong demand. Thank you guys.
Sure George so.
Your first question, which was talking about the relative levers within between Rbis, and <unk>. As an example, first off the inflation is much larger and L. G M levers within that all of our businesses are one just a relentless focus on productivity is both focusing on variable costs, so things like innovating.
Material reengineering and so forth Reese.
Restructuring.
So touching on both of those as you highlighted the material reengineering is more to do within the materials businesses as you would expect.
You asked are there limits to that within a given time period, yes. There are some limits to that but over the long horizon, we continue to have a pretty consistent.
<unk> to deliver.
Deliver material.
Cost out we call it.
Every single year, and we've been doing that for decades.
I don't see a long term limit to that but definitely within sharp.
Short cycle, there's some limits to what you can do there, which then you move to pricing.
Within Rbis, Theyre, having some inflation as well not nearly the magnitude that we're seeing within our materials and there we've been raising prices.
As well, it's a little bit of a different impact because every year theres a different program just the way that industry works and so you're constantly kind of repricing for new programs going from different designs of.
Of information and branding solutions for the apparel and retailers out there.
And then last thing I'll say is this restructuring that's been a consistent focus of ours.
In times, where that are relatively calm that's when you want to focus on the restructuring as we've been doing over the years.
We accelerated a lot of restructuring as you know in the last year and so we're in a position of strength right now.
When you're in a high volume environment. It's that's when you taper back a bit of your restructuring. So long term that's something that's gonna be a key a key.
For hours of hours across the portfolio.
But clearly we accelerated some of our actions in the last year from what we have here on the near Horizon.
Okay. Thanks for that just on the pricing side is there a point at which you would start to worry about.
Pressure sensitive materials are being replaced by something else in the market I don't know what it would be but nonetheless, you have had a lot of inflation you've had to raise pricing does there come a point, where your customers can't bear any further pricing. Thank you.
Okay.
Youre welcome now the pricing is broad base so.
It's not just industry specific is my point, so regardless of what labeling solutions Youre looking at there is just inflation that is extremely broad based.
And it's even outside obviously of packaging materials. So when you think about the cost of packaging is pretty small relative to overall pack.
Overall cost of the packaged good.
I think generally what youre seeing we see.
What's going on in the macro around increasing inflation.
Labour constraints it actually further heightened the need around information solutions labels, whether that'd be classic barcode labels or RFID and intelligent labels and so we think it's just going to while there are inflationary pressures, but also further increase of the business case for a lot of the solutions that we've been focusing on and investing in.
Our next question is from John Mcnulty with BMO. Please go ahead.
Yeah. Thanks for taking my question on the on the intelligent label front.
Admittedly the 15% that you hit is kind of in your long term range of 15 to 20.
But admittedly its a bit lower than I think what we were expecting just based on a bunch of channel checks throughout the industry. So I guess anything constraining your ability to deliver in terms of in terms of the volumes throughout this quarter in in the intelligent label side that we should be thinking about.
Yeah. Thanks, John So I mean, you know each quarter youre going to have.
Movement up and down within that range. Overall, if you look year to date and then what we're looking at for just full year, we're looking at growth of 30% for the full year.
And that's obviously with a little bit easier comps roughly 10% last year.
So youre looking at basically a compound annual growth of 18%, which is at the higher end of our range of our 15% to 20%.
So we feel good with where we are now specifically your question around constraints, yes, we were constrained the challenges in South Asia I referenced we have Vietnam. So our intelligent label's a biggest portion of that 75% is for apparel with the constraints we saw in Vietnam.
As I mentioned for Rvs overall impacted the.
Intelligent labels businesses.
A couple of points as well as in Malaysia in the middle of the quarter. It was just a couple of weeks, but Malaysia had a lot of Lockdowns and Thats, where we have one of our RFID.
RFID inlay manufacturing plants, so definitely a bit of constraint, but overall, we feel good with where we are and how we're how we're trending and how the pipeline is developing.
Got it now that's helpful color and then I guess the other question would just be on the free cash flow front I mean, you already generated a huge amount so far at whatever it was 632 I think it was <unk>.
<unk> normally is a big windfall kind of quarter for you as well in terms of in terms of free cash I guess should we be thinking about it differently just given all the raw material inflation and things like that or is <unk> kind of be the big anchorman that it normally is how should we be thinking about that.
Yes, I think Theres a couple of things. So one is our capex year to date is a bit lower than we would've expected coming into the year for.
For the full year, we're probably still around what our initial expectations would have been but just given supply chain challenges and some things getting delayed from our equipment.
Equipment production perspective building perspective things like that we expect to have more capex here in Q4, and we normally do but I think probably more relative to the first three quarters and what we normally would have.
So that's one driver. So overall I think our view is that we've got about $630 million as you said year to date, our target is to deliver over 700, we're very confident that that's still about $150 million more than last year, which was a record free cash flow year for us. So I feel very good about the trajectory here and our ability to continue driving strong free cash.
So.
Got it thanks very much for the color.
Yeah.
Our next question is from Josh Spector with UBS Securities. Please go ahead.
Yeah, Hi, guys. Thanks for taking my question.
Just so in the third quarter I mean, you guys did a really good job holding margins flat sequentially. In spite of what you earlier called out as high single digit raws inflation quarter to quarter. Just curious what was the biggest factor that helps you achieve that in the third quarter, but I think your guidance for fourth quarter reflects about a 50 basis point sequential margin decline.
So what's different about what you think you can achieve here in the fourth quarter versus last quarter.
Yeah.
Yeah, I think overall as you said part of what part of what you see when you look at the segments is some improvement in Rbis, particularly sequentially Q2 to Q3 and when the materials businesses, where we saw a little bit more of a sequential inflation in third quarter. It was where we saw a little bit of a sequential decline Q2 to Q3, So I think overall, a big part of that.
Overall flatness was really driven by the strengthening of RBS from Q2 to Q3 should we look at Q3 to Q4, we expect to continue delivering strong margins in the RBS segment.
We did talk about having no further sequential inflation that we're now working through passing prices through so it'll be a little bit more of a gap in the fourth.
We would've expected before as well.
Okay. Thanks, that's helpful and just on the RFID side U P. S. Specifically talked about more RFID adoption and their parcels. Just wondering if you can comment if that's a project one that you're involved with.
Can you size that opportunity if not specifically for ups's customer, but maybe the North America parcel market adoption was taken up at the rate that ups's discussing and does this change any of your view about some of the medium term adoption since I think he still talk about retail being the <unk>.
Biggest opportunity for the next few years.
Yeah. So we've got a number I'm not going to comment on anything specific any specific program. We're working through but we are working with all of the major logistics players and a lot of it is specifically as you normally see is starting out with.
Targeted areas, where the biggest challenges and the need for automation are and so we've got a number of programs and that's part of it when I talked about the revenue growth being.
Above the average from a very small base that is.
It relates to those programs and logistics.
And as far as you know it.
Adopting across the entire network, which we.
We see significant opportunity just when you think about the amount of automation required and trying to reduce costs, but also increased speed.
We see that this technology, RFID and our broader intelligent label solutions.
As being a key enabler to helping the company to achieve that so you ask what can the size of the market being shared some information in our March <unk>.
Investor Day.
Like epic simply you can just look at number of parcels that are out there. So if you think about individual.
Companies when they ultimately fully adopt what the magnitude of that could be.
Okay. Thank you.
Yeah.
Our next question is from Jeff Zekauskas with Jpmorgan. Please go ahead.
Thanks very much.
I think in your slides you talk about $600 million of annualized inflation, but you also say that for the year.
Your annual inflation is about 10%.
So if $600 million is 20% and 10% is 300 million.
And $300 million would be offset by I don't know if 4% across the board price increase.
Are your prices up that much or are you in the whole by I don't know 50 million or $70 million in raw material costs. This year can you size that.
Sure Jeff So I think in general Directionally you are right I think when we look at pricing as I said here in the third quarter in <unk>, specifically and were talking mostly LG in here when we're talking about that $600 million in.
20% L G M and H M I should say.
We had about five points of price in Q3.
And as part of the LTM growth rate there in the fourth quarter, we expect that to be a little bit higher year over year is where <unk> been implementing prices in the third quarter and some new increases that take effect at some point in Q4. So so yes, we still have a gap as we've talked about from a margin perspective overall between price and inflation.
But certainly that that pricing percentage continues to grow as we move through the year.
Sure.
Okay, and so propylene is already falling and you know probably polyethylene is going to be down.
A few cents a pound in October maybe it's going to go down five cents a pound for the next three or four months. So but what you said is you spot that youre inflation would be not only higher in the fourth quarter, which I understand but in the first quarter why would it be higher in the first quarter of.
<unk> 22, as a base case.
Yeah, and I'm talking sequentially. So I think just you've seen things progressed as we exited Q3.
Q4, so it will create a little bit of incremental incremental impact in the first quarter that frankly are in the first quarter I guess.
Part of it Jeff is just the first month and a half it stays in your inventory and then it slowly bleed through to the P&L. So it's just a delayed effect of when we actually get the inflation. The other thing I'll say is I know theres, an outlook as far as what might be happening over the coming months.
I think us and the entire industry kind of got that long it wrong a quarter ago, where there was an expected abatement here in Q4, and we've been seeing incremental inflationary pressures. So.
We tend to just look out a few months and look to see what's there and what do we expect in trying to evaluate capacity additions and what's going on in the macro to help it.
Shape beyond that but I think we're in a pretty uncertain environment. So we're not baking anything in or commenting on 2022 at large.
What raw materials are you short what can't you get.
Yeah, I think it depends on the region and the specific business I think it's been a challenge on certain chemicals that go into our films and our adhesives, depending on the region and it's not as though we haven't been able to get them for an extended period of time, but it does create some challenges within operations. When you may have something that's delayed a week or a few days even.
And then you end up having to run over time or do something else to manage through this kind of situations I think paper liners in Europe has been a challenge more recently as well so there's a really.
Nothing that's been long standing one thing I would say over the course of the last few quarters.
Ben.
Different areas that impacted us for short periods of time as we move across the year here and just the end of that Jeff is not just what can be outbound from our suppliers. There are lots of delays in the freight industry. So its taking longer things being held up at you know our cross docking.
Facility or something where it's just taking longer to get through materials and that alone can cause a delay and it might be a delay just by a day or two days or it might be a week and a half.
Where are you then need to shift the assets to other other products and so forth as Greg said.
Okay, great. Thank you so much.
Our next question is from there Josh in Israel with their member capital. Please go ahead.
Great. Thanks, so much.
So I had a question on slide 10, where you show the product mixes within Rbis.
How should we think of the mix within best Com relative to this pie chart its best comp.
That'd be a totally new category or it has some overlap with your existing portfolio.
Yes.
Yeah, we will lay that out in the next earnings call, but overall, it's going to be a new category with both.
Majority of it is in high value categories, and the rest of it will be a base.
Got it got it and then any other color you could provide on your RFID pipeline.
Where that stands versus the start of the year.
Okay.
I think your question started with little disruption.
RFID pipeline growth I think is what your question was so yes, we continue to see good momentum overall within the RFID pipeline.
I'd say I think I commented on this last quarter as well our focus is more on moving things through the mouth of the funnel. If you will more migrating them further down the funnel.
So great progress on what we're seeing there a lot of whether you're looking at food and.
Quick service restaurants.
Number of pilots being initiated a number of pilots being moving to local or regional rollouts.
So there's quite a bit of activity going on there and we commented on logistics earlier as well.
So that's that's generally what's happening I guess beyond that.
It's just a move into within some of the if you think about a number of retailers that are multi category retailers. You know, we're having discussions about moving out of the apparel department and into other departments within those are larger retailers as well so number of activities going on broadly I'd say, it's the food and logistics.
Areas of areas with the greatest growth similar to what we identified EMEA.
Investor Day in March about where the opportunity wasn't where our focus was.
Thanks, so much guys.
Our next question is from the line of Chris Capps with loop capital. Please go ahead.
Yes.
Yeah, Hi, Thank you for taking the question so focused on L. G M and the comments about organic growth.
Region specifically.
Just hoping for a little bit more color why western Europe would be up more than 20% versus the low double digits in north American emerging markets.
I don't think it has anything to do with the more pronounced inflation. There. So I was just wondering if you could.
There's some explanation for that.
Divergence in trends there. Thanks.
Yeah, Chris I think some of that is just based on comps. So last year. If you go back to last year, we were <unk>.
Climbing in Europe, particularly in the third quarter after.
After the surge we've seen in the second quarter from the pandemic. So most of it is comps when we look over two year period Europe is up about 10% from 2019 Q3, 2021 Q3, which is still above the historical growth rate of that region. So there's still healthy markets, but definitely we've got some gyrations quarter to quarter.
Got it got it and then you mentioned how some of that.
Fly chain logistical challenges of restrained growth a little bit and in.
In Rbis has that been the case in any instances in different regions and L. G. M. Thank you.
Whereas we had a it's pretty much <unk> North America is what's the most.
Most.
It's Jim.
And then for Rbis.
Constraints, just around like we talked about Vietnam, and Malaysia, and so forth that are COVID-19 related and it's not just us obviously, it's the entire it might be a region or a country or the entire country.
And then LNG in Asia is also impacted freight is a challenge globally. It's a particular challenge in freight around Asia, and just moving product.
Tween countries and so forth. So that's a that's obviously a challenge <unk> L. G M as well in Asia.
Thank you.
Our next question is a follow up question from the line of George Staphos with Bank of America. Please go ahead.
Hi, guys.
One is just a quick detail question I had missed it you said something about $60 million related to vest comment just for posterity, what was that related to again a question on capital allocation.
Yeah, George So that was specific to <unk> purchase accounting amortization will be somewhere in the $55 million to $60 million range is what we expect for 2022, when we step back and look at kind of total depreciation and amortization, including kind of their ongoing depreciation it's probably in the.
$78 million range for best Com next year overall.
Thanks for that correct and then my other question could you remind us what you said in the Paas and if any of this has changed in terms of your appetite.
<unk> ability to do M&A within the <unk>.
Sector again in periods of stress.
The big companies usually.
Gain capabilities gained share.
The smaller companies with <unk>.
Tend to fall back are there any companies in.
In the pipeline that would be helpful to you from a value as well because that's one of the components in terms of your capital allocation strategy.
It would be complementary to two two Avery would you have the willingness to do anything like that.
And you know relative to some of the experiences some of your peers had back in the early two thousands would you have the ability to add anything in El Champ, Thanks, guys and good luck in the quarter.
Thanks, George Yes. So we continue to you know we have an M&A pipeline that we've talked about we continue to engage and work with that with our partners.
The industry. So that's something that we are <unk>.
Definitely.
Continuing to work through and.
As far as specifically the L. G M. L. G M. Each of our divisions have a pipeline that we continue to work.
And we definitely have an appetite for areas, where you look at M&A as opportunities to accelerate our strategy. So we're focused on M&A that is disproportionate focus on high value categories and give us new capabilities that are as you mentioned can enhance the overall capabilities of the portfolio. So theres a number of angles, we look here.
But those are the two broad thrusts is high value categories emphasis and bringing on new capabilities.
Overall, and obviously the financial and so.
We're continuing to work it and we just spent $1 45 billion on best come we feel good with the early results of that and the outlook for that business and are confident we're going to achieve a good return there and then also looking to deploy our capital that we have going forward.
Mitch would be fair to say at the high value quotient would be more likely met and things that would be in the Rbis segment more broadly or is that an oversimplification and incorrect. Thanks again I'll turn it over from here.
Yes, I think what you're saying is it's more of it's more around moving higher end around information solutions and the brand management capabilities and so we've got a base materials, both within lgs, but also even Rbis has a base materials business you know just making the blank RFID inlays and then there's working through the actual <unk>.
Brandon the information solutions, so I Wouldnt say theres, one business more than the other overall the focus is around high value categories as.
Focusing around you know value add material science product categories as well as information branding solutions.
Alright, Thank you very much.
Mr. Chair there are no further questions at this time I will now turn the call back to you for any closing remarks.
Alright, well. Thank you everybody for joining we had another strong performance in a very challenging period and I just once again want to thank our entire team for their ongoing efforts to keep one another safe while continuing to deliver for our shareholders and obviously delivering for our customers. So thank you very much.
And ladies and gentlemen that does conclude the conference call for today. We thank you all for your participation and ask that you. Please disconnect your lines have a great team.
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