Q4 2021 Avery Dennison Corp Earnings Call

Speaker 1: you

Speaker 2: Please continue to stand by. The conference will begin shortly. We do appreciate your patience and ask that you please remain on the line.

Please continue to standby the conference will begin shortly we do appreciate your patience and I thought you. Please remain on the line today's conference will begin shortly.

Speaker 3: Today's conference will begin shortly. Shortly. Day 7.

[music].

Speaker 2: Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach the operator, please press star 0. Welcome to Avery Denison's earnings conference call for the fourth quarter and full year ended on January 1st, 2022.

Ladies and gentlemen, thank you for standing by during the presentation. All participants will be in a listen only mode. Later, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the fall.

Sure on your telephone.

At any time during the conference you need to reach the operator, Please press Star Zero welcome to Avery Dennison earnings conference call for the fourth quarter and full year ended on January 1st 2022.

Speaker 2: This call is being recorded and will be available for replay from noon Pacific time today through midnight Pacific time, February .

This call is being recorded and will be available for replay from noon Pacific time today through midnight Pacific time February 5th.

Speaker 2: To access the replay, please dial 800-633-8284 or 1-402-977-9140 for international callers.

To access the replay please dial 806, 338284 or one four O 290, 779140 for international callers.

Speaker 2: The conference ID is 21997964.

The conference I D is 21997964.

Speaker 2: I'd now like to turn the call over to John Ebley, Avery Denison's Head of Investor Relations.

I'd now like to turn the call over to John <unk>.

Denizens head of Investor Relations. Please go ahead.

Speaker 4: Thank you, Tina. 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 A4 to A10 of the financial statements accompanying today's earnings release.

Thank you Tina. 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 810 of the financial statements accompanying.

Today's earnings release.

Speaker 4: We remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results.

We remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results.

Speaker 4: These forward-looking statements are made subject to the safe harbor statement included in today's earnings release.

These forward looking statements are made subject to the safe Harbor statement included in today's earnings release.

Speaker 4: On the call today are Mitch Boutier, 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.

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.

Speaker 5: We're pleased to report our 10th consecutive year of strong top and bottom line growth.

We're pleased to report our 10th consecutive year of strong top and bottom line growth.

Our label and graphic materials business delivered strong performance in a year of significant raw material inflation and constrained supply.

Speaker 5: Our label and graphic materials business deliver strong performance in the year of significant raw material inflation and constrained supply, retail branding information solutions posted both strong top line growth and significant margin expansion.

Retail branding information solutions posted both strong top line growth and significant margin expansion.

Speaker 5: Industrial and healthcare materials made solid progress, and importantly, our intelligent labels platform continues to deliver significant growth and increasing potential.

<unk> healthcare materials made solid progress.

And importantly, our intelligent labels platform continues to deliver significant growth and increasing potential.

Speaker 5: In addition to great results for the year, 2021 marked an important milestone for the company. As the final year of measurement for the five-year financial targets we communicated in early 2017.

In addition to great results for the year 2021 marked an important milestone for the company as the final year of measurement for the five year financial targets, we communicated in early 2017.

This is the third long term performance cycle, we've completed since first introducing this discipline back in 2012 and I'm pleased to report that we once again again achieved our company goals.

Speaker 5: Our consistent performance over the years reflects the resilience of our industry-leading market positions, the strategic foundations we've laid, and our agile and talented workforce.

Our consistent performance over the years reflects the resilience of our industry, leading market positions the strategic foundations, we've laid and our agile and talented workforce.

Our playbook is working extremely well as we continue to focus on five overarching strategic pillars.

Speaker 5: Our playbook is working extremely well as we continue to focus on five overarching strategic pillars.

Speaker 5: driving outside growth in high-value categories, growing profitably in our base businesses, focusing relentlessly on productivity, effectively allocating capital, and leading in an environmentally and socially responsible manner.

Driving outsized growth in high value categories growing profitably in our base businesses.

Focusing relentlessly on productivity effectively allocating capital and leading in an environmentally and socially responsible manner.

Over the last five years, we achieved exceeded even our long term companywide goals set in early 2017, including delivering an EPS CAGR of 17% and growing the company to $8 $4 billion in revenue.

Speaker 5: There were many important milestones achieved over this time horizon. One standout, of course, is Intelligent Labels, now a $700 million platform.

There are many important milestones achieved over this time horizon. One stand out of course is intelligent labels now a $700 million platform.

Speaker 5: This business tripled in size over the last five years, growing 20% annually on an organic basis.

This business tripled in size over the last five years growing 20% annually on an organic basis.

The strong growth over this time horizon was driven primarily by apparel as we continued to drive further adoption of the technology and expand programs with major customers in this key end market.

Speaker 5: The strong growth over this time horizon was driven primarily by apparel. As we continue to drive further adoption of the technology and expand programs with major customers in this key in market.

Speaker 5: And while we continue to expect apparel to be the key growth driver in the coming few years, we see even greater opportunity over the long run in other key untapped markets.

And while we continue to expect apparel to be the key growth driver in the coming few years, we see even greater opportunity over the long run and other key untapped markets.

Speaker 5: For example, in the food segment, three quick service restaurants, after successful pilots, are in the early stages of rolling out RFID to improve supply chain traceability and inventory accuracy.

For example in the food segment three quick service restaurants. After successful pilots are in the early stages of rolling out RFID to improve supply chain traceability and inventory accuracy.

Speaker 5: And in logistics, we continue to work with shipping and logistics players taking further automation to drive speed and productivity.

In logistics, we continue to work with shipping and logistics players, taking further automation to drive speed and productivity.

Speaker 5: As a leader in ultra-high frequency RFID, we are positioned extremely well to not only capture these new opportunities, but to create them.

As the leader in Ultra high frequency RFID, we are positioned extremely well to not only capture these new opportunities but to create them.

Speaker 5: To that end, we are continuing to invest in developing new applications and markets, adding new technologies, both physical and digital, increasing our manufacturing capacity, and expanding our team, the best, most experienced in the space.

To that end, we are continuing to invest in developing new applications and markets, adding new technologies, both physical and digital increasing our manufacturing capacity and expanding our team the best most experienced in the space.

The momentum in intelligent labels, where we continue to expect long term growth of 15% to 20% annually is a great example of the progress we continue to make.

Speaker 5: The Momentum and Intelligent Labels, where we continue to expect long-term growth of 15% to 20% annually, is a great example of the progress we continue to make. But it is only one example of many.

But it is only one example of many across the portfolio.

Speaker 5: Over the last five years, we've made solid progress in achieving the objectives in IHM, great progress in LGM, and truly remarkable progress in RBIS.

Over the last five years, we have made solid progress in achieving the objectives and IHS <unk>, great progress in lgs and truly remarkable progress in Rbis.

Speaker 5: we are focused on creating exceptional value for all of our stakeholders across the entire company.

We are focused on creating exceptional value for all of our stakeholders across the entire company.

Speaker 5: Now, looking specifically at 2021, the year was no different as we made solid progress on our strategic pillars while posting impressive results.

Now looking specifically at 2021, the year was no different as we made solid progress on our strategic pillars, while posting impressive results.

We delivered EPS of $8 91 for the year up 25% from 2020 and 35% from 2019 levels.

Speaker 5: We delivered EPS of $8.91 for the year of 25% from 2020 and 35% from 2019 level.

Speaker 5: We grew the top line by roughly 19% on a constant currency basis and 16% organically.

We grew the top line by roughly 19% on a constant currency basis and 16% organically.

Speaker 5: All three segments delivered strong results relative to both 2020 and 2019 with solid growth in our base businesses and continued above average volume growth from high value categories.

All three segments delivered strong results relative to both 2020 and 2019.

With solid growth in our base businesses and continued above average volume growth from high value categories.

Speaker 5: These strong results come at a time of continued and increasing challenges. The ramping up of COVID infections in many countries, continued supply chain constraints and additional inflationary pressures are taxing the industry, our customers and our teams.

These strong results come at a time of continued increasing challenges the ramping up of Covid infections. In many countries continued supply chain constraints and additional inflationary pressures our tax in the industry, our customers and our teams.

Speaker 5: The biggest challenges are now in LGM North America and Europe where we are seeing both increasing constraints on the availability of raw materials and additional inflationary pressure.

The biggest challenges are now and LG in North America, and Europe , where we are seeing both increasing constraints on the availability of raw materials and additional inflationary pressure.

Speaker 5: The team has continued to find a way to manage these compounding challenges and deliver impressive results over the last couple years. And we are confident we will do so again in 2022.

The team is continuing to find ways to manage these compounding challenges and deliver impressive results over the last couple of years and we are confident we will do so again in 2022.

Now a brief summary of the year by segment.

Label and graphic materials delivered another year of strong margins and exceptionally strong topline growth, reflecting above average volume growth as well as pricing.

Speaker 5: Label and graphic materials delivered another year of strong margins and exceptionally strong top line growth, reflecting above average volume growth as well as pricing.

Throughout the year orders remained elevated this was driven by continued strong demand for consumer packaged goods and e-commerce trends as well as to a lesser extent, we believe inventory building downstream from us given the supply chain challenges and significant inflationary pressures.

Speaker 5: Throughout the year, orders remained elevated. This was driven by continued strong demand for consumer packaged goods and e-commerce trends, as well as, to a lesser extent, we believe inventory building downstream from us given the supply chain challenges and significant inflationary pressure.

We experienced raw material constraints across many categories throughout the year. Currently we are seeing some easing of constraints in chemicals, and resins, but increasing constraints for paper and transportation.

Speaker 5: We experienced raw material constraints across many categories throughout the year. Currently, we are seeing some easing of constraints and chemicals in residents, but it increasing constraints for paper and transportation.

Speaker 5: We exited the year with annualized inflation of more than $600 million, nearly 20% increase in our materials' businesses alone, as the cost of raw materials and freight continued to rise.

We exited the year with annualized inflation of more than $600 million of.

Nearly 20% increase in our materials businesses alone as the cost of raw materials and freight continue to rise.

Given the magnitude of this inflation and the lag in the timing of our price increases margins moderated in the back half of the year for this business.

Speaker 5: Given the magnitude of this inflation and the lag in the timing of our pricing increases, margins moderated in the back half of the year for this bit.

Speaker 5: While we are experiencing even more inflation as we start this year, particularly in paper, we expect to offset the higher costs over the cycle.

While we are experiencing even more inflation as we start this year, particularly in paper, we expect to offset the higher costs over the cycle.

Speaker 5: We remain confident in our ability to continue driving GDP plus growth in this high return business.

We remain confident in our ability to continue driving GDP plus growth in this high return business.

Speaker 5: Retail branding and information solutions continues to deliver impressive results, with margins expanding to another record on significant revenue growth for the year, driven by strength in both high-value categories as well as the base business.

Retail branding and information solutions continues to deliver impressive results with margins expanding to another record on significant revenue growth for the year driven by strength in both high value categories as well as the base business.

Speaker 5: As I mentioned earlier, momentum in our Intelligent Labels platform continues as sales grew roughly 30% on an organic basis compared to 2020 and roughly 40% compared to 2019.

As I mentioned earlier momentum in our intelligent labels platform continues as sales grew roughly 30% on an organic basis compared to 2020, and roughly 40% compared to 2019.

Speaker 5: and our recent Vestcom acquisition is not only achieving its performance goals, but also showing positive early signs in providing additional channel access to intelligent labels.

And our recent <unk> acquisition is not only achieving its performance goals, but also showing positive early signs and providing additional channel access to intelligent labels.

Speaker 5: In the industrial and healthcare material segment, sales rebounded versus prior year, well above 2019 levels, and operating income grew significantly.

In the industrial and healthcare materials segment sales rebounded versus prior year, well above 2019 levels and operating income grew significantly.

Speaker 5: We've made solid progress in this group of businesses over the last few years. However, the challenges in some of its end markets, principally automotives, have hindered our ability to achieve our ambitions.

We've made solid progress in this group of businesses over the last few years. However, the challenges and some of its end markets principally automotive have hindered our ability to achieve our ambitions.

Speaker 5: Despite these challenges, we are focused on achieving the long-term potential of this group.

Despite these challenges we are focused on achieving the long term potential of this group.

Speaker 5: Now, as for capital allocation, we continue to execute a balance strategy.

Now as for capital allocation, we continue to execute our balanced strategy.

Speaker 5: We have increased our pace of growth and capability building investments, both organically and through M&A.

We have increased our pace of growth and capability building investments, both organically and through M&A.

Speaker 5: Over the last couple of years, we've completed several acquisitions, expanded our venture program, and started ramping up the pace of organic investments, which recently began further accelerating.

Over the last couple of years, we've completed several acquisitions expanded our venture program and started ramping up the pace of organic investments, which we recently began further accelerating.

The overwriting focus of our M&A venture program and organic investments is to further increase our presence in high value categories increase our pace of innovation and advanced our sustainability initiatives.

Speaker 5: The overriding focus of our M&A Venture Program and our Granite Investments is to further increase our presence in high-value categories, increase our pace of innovation, and advance our sustainability initiatives.

Speaker 5: And we intend to continue this path all while maintaining a strong balance sheet and returning cash to shareholders.

And we intend to continue this path all while maintaining a strong balance sheet and returning cash to shareholders.

With these great results in mind. It is important to highlight that our overriding focus is on the long term success of all of our stakeholders and we have a clear set of objectives and strategies focused on their mutual success.

Speaker 5: With these great results in mind, it's important to highlight that our overriding focus is on the long-term success of all of our stakeholders, and we have a clear set of objectives and strategies focused on their mutual success.

Speaker 5: We're making great progress towards our 2025 and 2030 sustainability goals and are on track to deliver our 2025 financial objectives.

We're making great progress towards our 2025 and 2030 sustainability goals and are on track to deliver our 2025 financial objectives.

Speaker 5: As you know, the overarching objective of our long-term financial targets is to deliver GDP plus growth and top core tile returns on cash.

As you know the overarching objective of our long term financial targets is to deliver GDP plus growth and top quartile returns on capital.

Speaker 5: This is a recipe for superior value creation over the long term, and we are confident in our ability to continue doing so.

This is a recipe for superior value creation over the long term and we are confident in our ability to continue doing so.

Speaker 5: After delivering a 20% increase in EPS in 2021, X currency, we are again targeting double-digit EPS growth in 2022.

After delivering a 20% increase in EPS in 2021 ex currency, we are again targeting double digit EPS growth in 2022.

Speaker 5: While 2022 is already shaping up to be just as challenging as the last couple of years, we are prepared for it commercially, operationally and financially.

While 2022 is already shaping up to be just as challenging as the last couple of years, we are prepared for it commercially operationally and financially.

And once again I want to thank our entire team for their tireless efforts to keep one another safe while delivering for all of our stakeholders.

Speaker 5: And once again, I want to thank our entire team for their tireless efforts to keep one another safe while delivering for all of our stakeholders.

Speaker 5: This has been a particularly taxing time for our teams, and we are all grateful for their dedication, agility, and focus. Thank you.

This has been a particularly taxing time for our teams and we are all grateful for their dedication agility and focus. Thank you now.

Now I'll hand, the call over to Greg.

Alright, Thanks, Mitch and Hello, everybody.

Speaker 5: I'll first provide some additional color on a performance against our long-term targets, and then walk you through fourth quarter performance in our outlook for 2022.

I'll first provide some additional color on our performance against our long term targets and then walk you through fourth quarter performance and our outlook for 2022.

Speaker 4: As Mitch said, 2021 was an important milestone for the company as the final year for the five-year financial targets we communicated in early 2017.

As Mitch said 2021 was an important milestone for the company as the final year for the five year financial targets, we communicated in early 2017.

Speaker 6: And as you noted, we again achieved our company wide target.

And as he noted we again achieved our companywide targets.

Speaker 6: The consistent execution of our key strategies enables us to continue delivering against our targets with an overriding focus on delivering GDP plus growth and top quartile returns on capital over the long term.

The consistent execution of our key strategies enables us to continue delivering against our targets with an overriding focus on delivering GDP plus growth and top quartile returns on capital over the long term.

Over the five year period sales growth on a constant currency basis was six 6% annually with.

Speaker 6: Over the five-year period, sales growth on a constant currency basis was 6.6 percent annually, with an organic growth of 4.6 percent annually, both above our target.

With an organic growth of four 6% annually both above our target.

Speaker 6: Our organic growth was roughly two times global GDP for the same period.

Our organic growth was roughly two times global GDP for the same period.

Speaker 6: Operating margin was almost two full points above our target of 11%.

Operating margin was almost two full points above our target of 11%.

Speaker 6: Additionally, our EBITDA margin was above 15.6 percent in 2021, up almost three points compared to 2016.

And Additionally, our EBITA margin was above 15, 6% in 2021.

Almost three points compared to 2016.

Speaker 6: An adjusted EPS grew more than 17 percent annually over the past five years, significantly surpassing our target of 10 percent.

And adjusted EPS grew more than 17% annually over the past five years significantly surpassing our target of 10%.

Speaker 6: And as always, our focus continues to be the optimal balance of growth, margins, and capital efficiency to drive incremental EVA over the long term.

And as always our focus continues to be the optimal balance of growth margin and capital efficiency to drive incremental EBITDA over the long term.

To that point, our return on total capital performance continues to be in the top quartile relative to our capital market peers coming in at over 18% in 2021 again above our target.

Speaker 6: To that point, our return on total capital performance continues to be in the top quartile relative to our capital market peers.

Speaker 6: Coming in at over 18% in 2021, again, above our target.

Speaker 6: and our balance sheet remains strong with our net debt to EBITDA ratio below the low end of our target range. Given us ample capacity to continue executing our strategy.

And our balance sheet remains strong with our net debt to EBITDA ratio below the low end of our target range, giving us ample capacity to continue executing our strategies.

Speaker 6: Looking at the segments, both LGM and RBIS met or exceeded their organic growth targets and delivered margins above the high end of their target range.

Looking at the segments, both lgs and Rbis met or exceeded their organic growth targets and delivered margins above the high end of their target range.

Speaker 6: And we've made significant progress in IHM, despite being short of our targets there.

And we've made significant progress in IHS, despite being short of our targets there.

Speaker 6: In March of last year, we also introduced a new set of long-term targets for the company through 2025.

In March of last year, we also introduced a new set of long term targets for the company through 2025.

Designed to continue delivering superior value creation over the long term.

Speaker 6: Designed to continue delivering superior value creation over the long term.

Speaker 6: One year into this cycle, we are on track to achieve these goals as well.

One year into this cycle, we are on track to achieve these goals as well.

Speaker 6: Given the diversity of our end markets, our strong competitive advantages, and resilience as an organization to adjust course when needed, we're confident in our ability to continue delivering through a wide range of business cycles.

Given the diversity of our end markets, our strong competitive advantages and resilience as an organization to adjust course when needed. We are confident in our ability to continue delivering to a wide range of business cycles.

Now, let me provide some color on the fourth quarter.

Speaker 6: We delivered another strong quarter with adjusted earnings per share of $2.13 slightly above our expectation from a quarter ago, reflecting a tax benefit of a few cents and operational performance right in line with our midpoint.

We delivered another strong quarter with adjusted earnings per share of $2 13.

Slightly above our expectation from a quarter ago, reflecting a tax benefit of a few cents.

And operational performance right in line with our mid point.

Speaker 6: Earnings were down 6% versus last year, given the extra week in the prior year, and up 23% compared to 2019, driven by significant revenue growth and solid margins.

Earnings were down 6% versus last year, given the extra week in the prior year and up 23% compared to 2019, driven by significant revenue growth and solid margins.

Speaker 6: As expected, the impact of the extra week and belt tightening in Q4 of 2020 created tough comp.

As expected the impact of the extra week and belt tightening in Q4 of 2020 created tough comps.

Speaker 6: That combined with the increased pace of investments and the net headwind from pricing and inflation in 2021 decreased margins in the fourth quarter.

That combined with the increased pace of investments and a net headwind from pricing and inflation in 2021 decreased margins in the fourth quarter.

Sales were up 19% ex currency and 13% on an organic basis compared to prior year.

Speaker 6: Sales are up 19% ex-currency and 13% on an organic basis compared to prior year. Driven by higher prices and.

Driven by higher prices and strong volume.

Speaker 6: As Mitch mentioned, our input cost of continued to rise and supply chains remained tight.

As Mitch mentioned, our input costs have continued to rise and supply chain remain tight.

Speaker 6: we continue to address the cost increases through a combination of product re-engineering and pricing.

We continue to address the cost increases through a combination of product reengineering and pricing.

Speaker 6: and have announced additional price increases in most of our businesses and regions around the world.

And have announced additional price increases.

Most of our businesses businesses and regions around the world.

Speaker 6: Despite the impact of inflation and supply chain disruptions, we delivered a strong adjusted EBITDA margin of 14.9%.

Despite the impact of inflation and supply chain disruptions, we delivered a strong adjusted EBITDA margin of 14, 9%.

Speaker 6: down compared to prior year and up 40 basis points compared to 2019.

Compared to prior year, and up 40 basis points compared to 2019.

Speaker 6: Parents of cash generation allocation, for the year we generated $798 million of free cash flow, up 46% compared to prior year, and up 56% compared to 2019.

Turning to cash generation allocation for the year, we generated $798 million of free cash flow.

46% compared to prior year and up 56% compared to 2019.

Speaker 6: And we invested $272 million in fixed capital and information technology as we continued to accelerate investment in our high value categories, particularly RFID.

And we invested $272 million and fixed capital and information technology as we continue to accelerate investment in our high value categories, particularly RFID.

Speaker 6: And as mentioned previously, our balance sheet remains strong with a net debt to adjusted EBITDA ratio at year end of 2.2.

And as mentioned previously our balance sheet remains strong.

With a net debt to adjusted EBITDA ratio at year end of two two.

Speaker 6: Our current leverage position gives us ample capacity to continue investing organically as well as through strategic acquisitions while continuing to return cash to shareholders in a disciplined way.

Our current leverage position gives us ample capacity to continue investing organically as well as through strategic acquisitions, while continuing to return cash to shareholders in a disciplined way.

Speaker 6: During the year, we deployed $1.5 billion for acquisitions, as well as returned $400 million to shareholders through the combination of share repurchases and a growing dividend.

During the year, we deployed $1 5 billion for acquisitions as well as returned $400 million to shareholders through the combination of share repurchases and a growing dividend.

Now, let me turn to the segment results for the quarter.

Speaker 6: Label and graphic material sales were up to 12% ex-currency and 11% on an organic basis.

Label, and graphic materials sales were up 12% ex currency and 11% on an organic basis drew.

Speaker 6: driven by a high single-digit impact from price and higher volume and mix.

Driven by a high single digit impact from price and higher volume and mix.

Speaker 6: Growth remains strong in both the high-value categories and the base business, with both label and packaging materials and graphics and reflective sales up low double digits on an organic basis.

Growth remained strong in both the high value categories, and the base business with both label and packaging materials and graphics and reflective sales up low double digits on an organic basis.

Speaker 6: Looking at the segments organic sales growth in the quarter by region.

Looking at the segments organic sales growth in the quarter by region.

Speaker 6: North America sales were up mid-teens, and Western Europe sales were up high single digits, despite raw material, labor, and freight availability challenges that have continued to cause extended lead times for both of these regions.

North America sales were up mid teens in Western Europe sales were up high single digits, Despite raw material labor and freight availability challenges that have continued to cause extended lead times for both of these regions.

Speaker 6: Overall, emerging market sales were roughly 10% in the quarter, with India and China both up double digits.

Overall emerging market sales were up roughly 10% in the quarter with India and China are both up double digits.

Speaker 6: While LGM's profitability remains strong, adjusted EBITDA margin decreased from last year to 14.5%, as the impact of raising prices reduced the margin by roughly 140 basis points.

And while L. James' profitability remained strong adjusted EBITDA margin decreased from last year to 14, 5% as.

As the impact of raising prices reduced the margin by roughly 140 basis points.

Speaker 6: while the remainder of the decline coming from the impact of the extra week last year and the price-cost lag mentioned previously.

While the remainder of the decline coming from the impact of the extra week last year and the price cost lag mentioned previously.

Shifting now to retail branding and information solutions RBS sales were up 39% ex currency and 20% on an organic basis.

Speaker 6: Shifting now to reach out branding and information solutions, RBS sales were up 39% X currency, and 20% on an organic basis.

Speaker 6: as growth remains strong in both the high value categories and the base business.

As growth remained strong in both the high value categories and the base business.

Speaker 6: The apparel business saw particular strength in the performance and premium channels and continued double-digit growth in external embellishments.

The apparel business saw particular strength in the performance and premium channels and continued double digit growth and external embellishments.

Speaker 6: For the quarter, intelligent label sales were up more than 20% organically.

For the quarter intelligent label sales were up more than 20% organically.

Speaker 6: And adjusted EBITDA margin for the segment remains strong at 19%. With the positive benefits from acquisitions and higher volume, we're offset by growth investments, higher employee related costs, and the headwind from prior year temporary cost reduction action.

And adjusted EBITDA margin for this segment remained strong at 19% with the positive benefits from acquisitions and higher volume were offset by growth investments higher employee related cost and the headwind from prior year temporary cost reduction actions.

Turning to the industrial and healthcare materials segment sales increased 12% ex currency and 10% on an organic basis.

Speaker 6: Turning to the industrial and healthcare material segment, sales increased 12% ex-currency and 10% on an organic basis.

Adjusted EBITDA margin decreased to 12, 9%.

Speaker 6: The adjusted EBITDA margin decreased to 12.9%, which, similar to LGM, was driven by the impact of raising prices, the impact of the extra week last year, and by the price-cost timing lag.

Similar to LTM was driven by the impact of raising prices the impact of the extra week last year.

And by the price cost timing lag.

Speaker 6: Now, Shifty Touralook for 2022, we anticipate adjusted earnings per share to be in the range of $9.35 to $9.75.

Now shifting to our outlook for 2022, we anticipate adjusted earnings per share to be in the range of $9 35 to $9 75.

Speaker 6: We've outlined some of the key contributing factors to this guidance on slide 19 of our supplemental presentation materials.

We've outlined some of the key contributing factors to this guidance on slide 19 of our supplemental presentation materials.

Speaker 6: We estimate that organic shells growth will be 8 to 11 percent.

We estimate that organic sales growth will be 8% to 11%.

Speaker 6: reflecting mid to high single digits from higher prices and low to mid single digit volume growth. Coming up very strong volume growth across the segment in 2021.

Reflecting mid to high single digits from higher prices and low to mid single digit volume growth.

Coming off very strong volume growth across the segments in 2021.

Speaker 6: Based on current rates, currency translation is a roughly three point headwind to reported sales growth.

Based on current rates currency translation is a roughly three point headwind to reported sales growth.

Speaker 6: with an estimated $35 million headwind to operating income.

With an estimated $35 million headwind to operating income.

Speaker 6: This is roughly $15 million worse than we would have expected a quarter ago given recent changes in exchange rates.

This is roughly $15 million worse than we would've expected a quarter ago, given recent changes in exchange rates.

On inflation outlook assumes a low to mid teens rate for the full year with the largest impact coming in the first half.

Speaker 6: On inflation, our outlook assumes the low to mid-teens rate for the full year, with the largest impacts coming in the first half.

Speaker 6: And we anticipate spending up to $350 million in fixed capital on IT projects.

And we anticipate spending up to $350 million and fixed capital and it projects.

Speaker 6: as we continue to increase our pace of investments, adding capabilities and new capacity, particularly in key strategic platforms.

As we continue to increase our pace of investment.

Adding capabilities and new capacity, particularly in key strategic platforms.

Speaker 6: And we are also investing roughly $35 million in operating expense, principally in intelligent labels, digital capabilities, and sustainability.

And we are also investing roughly $35 million in operating expense principally in intelligent labels digital capabilities and sustainability.

Speaker 6: We expect our tax rate will be in the mid 20s for the full year based on current regulations as well.

We expect our tax rate will be in the mid <unk> for the full year based on current regulations as well.

Speaker 6: And lastly, we anticipate earnings growth in 2022 will be back half-weighted due to tough comps in the first part of the year, particularly Q1, including the timing of currency headwinds.

Lastly, we anticipate earnings growth in 2022 will be back half weighted due to tough comps in the first part of the year, particularly in Q1 <unk>.

Including the timing of currency headwinds and the.

Speaker 6: The price class lagged in the increasing pace of investments.

The price cost lag and the increasing pace of investments.

Speaker 6: In summary, through this dynamic environment, we are pleased with the strategic and financial progress we made against our long-term goals in 2021.

In summary through this dynamic environment, we are pleased with the strategic and financial progress we've made against our long term goals in 2021.

Speaker 6: And we are confident in our ability to continue to deliver exceptional value through our strategies for long-term profitable growth and disciplined capital allocation. Now we'll-

And we have confidence in our ability to continue to deliver exceptional value.

Through our strategies for long term profitable growth and disciplined capital allocation.

Now we will open up the call for your questions.

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Speaker 7: Our first question comes from Gansam Panjabi of Baird. Please go ahead. Thank you. Hi, everybody. Hope everybody's doing well.

Our first question comes from Ghansham Panjabi of Baird. Please go ahead.

Thank you hi, everybody.

Hope everybody is doing well.

Very well ghansham.

Speaker 7: Great to hear your voice, Mitch. Can you start off by giving us more color on the raw material constraints that you referenced? You know, I think you said it was petrochemicals at one point and now it's paper and...

Great to hear your voice Mitch can you start off by giving us more color on the raw material constraints that you referenced I think you said it was petrochemicals at one point and that was paper and.

Speaker 7: maybe a little bit more on the shipping side. How much do you estimate was the impact on 4Q volumes and also what are you embedding for the first quarter of this year and also if you could break out the volume components specifically adjusting for the extra week a year ago for the fourth quarter and I'm sorry if I missed that.

And maybe a little bit more on the shipping side, how much do you estimate was the impact on <unk> volumes.

And also what are you embedding for the first quarter of this year and also if you could break out the volume components, specifically adjusting for the extra week, a year ago for the fourth quarter and I'm, sorry, if I missed that.

Speaker 6: Yeah, so Ghansan, thanks for the question. I'll try to cover all those pieces. First of all, I guess, as you said, earlier in the year we had more of a challenge in early-mid 2021 from petrochemical supply constraints.

Yes, so ghansham. Thanks for the question I'll try to cover all of those pieces.

First of all I guess as you said earlier in the year, we had more of a challenge in early mid 2021 from petrochemical supply constraints I think as we move through the first or the fourth quarter and into the first quarter here in 2022, we've seen more of the constraint is coming from the paper side and it's a little bit the same on the inflation perspective, as well we've seen a little bit.

Speaker 6: I think as we move through the first or the fourth quarter and into the first quarter here in 2022, we've seen more of the constraints coming from the paper side, and it's a little bit the same on the inflation perspective as well. We've seen a little bit of easing in petrochemicals in some of the regions, but continue to see some challenges on paper. Particularly in Europe , we've seen more of the constraints, I think, in the fourth quarter on paper, some constraints in North America, but a little bit more in Europe even in Q4.

Of easing in petrochemicals and some of the regions, but continue to see some challenges on paper.

And particularly in Europe , we've seen more of the constraints I think in the fourth quarter on paper.

Some constraints in North America, but a little bit more in Europe , even in Q4, so we're continuing to manage through that across the businesses, but that's been a little bit of a trend as I look across the last number of quarters and just to build on that.

Speaker 6: So we're continuing to manage through that across the businesses, but that's been a little bit of the trend as I look across the last number of quarters and just to build on that. While the.

Supply chain constraints and related inflation tend to be concentrated in specific.

Speaker 5: supply chain constraints and related inflation tend to be concentrated in specific regions, I should say. It obviously has a global impact, so just like the Texas storm last March had an impact most on North America, there was a ripple effect across the regions. Right now, the paper inflation we're seeing is broad-based, but principally Europe , and that's obviously having ripple effects elsewhere as well, both on availability as well as inflation.

Regions I should say.

It obviously has a global impact so just like the Texas Storm last March had an impact most on North America. There was a ripple effect across the regions right now the paper inflation, we're seeing.

It's broad based but principally Europe , and that's obviously, having ripple effects elsewhere as well both on availability as well as inflation.

Speaker 6: I think your other question was on the extra week, so the extra week impact is not in our organic sales number that we're quoting. On a reported sales, it was about an 8.5% decline year-over-year from a sales perspective.

And then Ghansham I think your other question was on the extra week. So the extra week impact is not in our organic sales number that we're quoting on a reported sales. It was about an eight 5% decline year over year from a sales perspective.

Speaker 7: Okay, and then on RPIS, if I remember correctly, there was a, you know, a carole production issues because the lockdowns have yet not that impacted perhaps three Q. Did that boost four Q in any material way? Seems to be quite an acceleration in volumes for that segment after just...

Okay, and then on Rbis.

If I remember correctly there was a.

And power production issues because of Lockdowns in Vietnam that impacted perhaps <unk> did that boost <unk> in any material way it seems to be quite an acceleration in volumes for that segment after adjusting for the extra week.

Speaker 5: A bit, but if you recall, we were able to offset most of the shortfall in Southeast Asia as far as just the lockdowns that were occurring there by servicing that volume from elsewhere, principally China. So there was a bit of a carryover into Q4, so you should be looking at the second half a little bit more on an averaging basis for that business.

A bit but if you recall, we were able to offset most of the shortfall in southeast Asia as far as just the lockdowns that were occurring there by servicing that volume from elsewhere, principally China. So there was a bit of a carryover into Q4. So you do should be looking at the second half a little bit more on an averaging basis for.

That business.

Speaker 5: But overall, demand is strong in our business and in apparel specifically, and then broadly, you know, intelligent labels and external embellishments, which continue to show great potential and performance. So overall, the demand outlook within RBS is strong. Their issue right now is replenishing inventories at the end market level. But that...

But overall demand is strong in our business and in apparel specifically.

And then broadly intelligent labels and external embellishments, which continue to show great potential and performance. So overall the demand outlook within Rbis as strong.

The issue right now just replenishing inventories at the end market level.

But.

Speaker 5: There's a little bit of that conch on, but most of us you should look at as a strong and by demand environment thus far. Clearly, there's a lot of questions about what things will look like as we go through 2022. A lot of shifting forecasts out there and so forth, but right now what we've experienced is a strong demand environment in RBI.

There's a little bit of that Ghansham, but most of this you should look at it as a strong demand environment. Thus far clearly there is a lot of questions about what things will look like as we go through 2022.

A lot of shifting forecast out there and so forth, but right now what we've experienced is a strong demand environment in Rbis.

Okay. Thanks for that much.

Speaker 2: Thank you. The next question comes from George Stafos of Bank of America. Please go ahead.

Thank you. The next question comes from George Staphos with Bank of America. Please go ahead.

Speaker 8: Everyone, good morning guys. Congratulations on the year and thanks for all the details. First question is going to be on LGM. So to the extent that your starting to see more inflation.

Hi, everyone. Good morning, guys congratulations on the year and thanks for all the details.

First question just going to be on <unk>.

So to the extent that youre starting to see more inflation.

Speaker 8: in paper and you know it sounds like in particular in Europe .

Paper and it sounds like in particular in Europe does that change at all your positioning from a competitive standpoint traditionally Avery has had my sense more strength.

Speaker 8: does that change at all your positioning from a competitive standpoint you know traditionally a vary has had my sense more strength uh... when it came to film based

When it came to film based and also in terms of sourcing feedstocks on the pet side, but on paper you. Obviously don't have quite the same advantages. So does that put you added a little bit more of a disadvantage than if it was the inflation is coming at the petrochemical side, why or why not and talk about your ability to raise.

Speaker 8: and also in terms of sourcing feedstocks on the pet side. But on paper, you obviously don't have quite the same advantages. So does that put you at a little bit more of a disadvantage than if the inflation was coming at the petrochemical side? Why, why not? And talk about your ability to raise pricing to offset inflation on paper relative to if it was coming from the chemical side.

<unk> to offset inflation on paper.

Two if it was coming from the chemical side.

Yeah. So I'll talk about the second question first George So we've been raising prices across all the categories.

Speaker 5: Yeah, so I'll talk about the second question first, George. So we've been raising prices across all the categories here multiple times and across all the regions. And we've been able to pass along the price increase the extent we need them to the extent the productivity and product reengineering can't can't cover the rising inflation.

Multiple times across all the regions.

Been able to.

Pass along the price increase the extent, we need them to the extent the productivity and product reengineering.

Can't cover the rising inflation.

Speaker 5: And if we look over pass cycles in this cycle, we've been pretty much at that constant kind of few months to lag category by category region by region. So that is very consistent in our ability to pass through who remains intact. As far as the competitiveness as far as, so we do have a bit higher share in films in the number of regions and a little bit less in paper, we're still the industry leader overall across.

And if we look over past cycles in this cycle, we've been pretty much at that constant kind of few months lag by category by category region by region.

So that is very consistent in our ability to pass through.

Remains intact as far as the competitiveness as far as.

So we do have a bit higher share in films and a number of regions and a little bit less in favorite where still the industry leader overall across all.

Speaker 5: all categories. So that is something that we look to be able to leverage our size and purchasing capability to continue to be sure that we can maintain supply and so forth. Now, particularly in Europe , there's a few unique dynamics going on there where there is further constraint around paper supplies, which I think are hindering industry at large and clearly raise a question about when those constraints release in Europe , when we'll be able to have the...

All categories. So.

That is something that we look to be able to leverage our size and purchasing capability to continue to be sure that we can maintain supply and so forth now, particularly in Europe Theres, a few unique dynamics going on there where there is further constraint around paper supplies, which I think are hindering industry at large.

And clearly raised the question about when when those constraints released in Europe , when we'll be able to have the.

Speaker 5: the normal supply chain, if you will, on paper goods. So I don't think that's as much a competitive issue as it is just a reality of the marketplace. And I say that, and I think it's important to put in context.

The normal supply chain, if you will on paper goods. So I don't think that's as much a competitive issue as it is just a reality of the marketplace.

I say that and I think it's important to put it in context.

Speaker 5: If you look over last 12 months, the magnitude of supply chain constraints we've had again, starting with what happened in the U.S. last year with the whole federal chemical industry and the Gulf Coast kind of being shut down in the ripple effects that had through supply chain. The fact that Southeast Asia and parts of South Asian general were locked down in the third quarter last year in our BIS. And now this is the challenge of the quarter that we're working through a business to make sure we continue to meet our customers needs and our end marks.

If you look over the last 12 months the magnitude of supply chain constraints. We've had again starting with what happened in the U S last year with the whole petrochemical industry on the Gulf coast kind of being shut down and the ripple effects that had through supply chain.

Fact that southeast Asia and parts of South Asia in general were locked down in the third quarter of last year in Rbis and now this is.

The challenge of the of the quarter that were working through busily to make sure we continue to meter.

Customers needs in our end market mix.

Speaker 8: Mitch, thanks for that. Just a point of clarification on the answer and then my second question. Is the supply chain issue in Europe largely being triggered by some of the strikes that are occurring at the finished paper mills, from what you've gathered, or are there other things that are more important? And then the second question, you know, you talk about investing an incremental $35 million in intelligent labels, digital capabilities, and sustainability.

Thanks for that just a point of clarification on the answer and then my second question.

Is the supply chain issue in Europe , largely being triggered by some of the stakes strikes that are occurring at the Finnish paper Mills from what you gathered or are there other things that are more important and then the second question.

You talk about investing an incremental $35 million.

In intelligent labels digital capabilities and sustainability.

Speaker 8: is that capital cost will there be some or is that mostly P&L effect and independent of where it shows up on your financial statements beyond sort of the description you have here what will AVERY get in terms of incremental growth and capabilities in this key category for you going forward in 23 and beyond from that investment. Thank you.

Is that capital costs will there be some or is that mostly P&L effect.

Independent of where it shows up on your financial statements beyond sort of the description you have here what will Avery gap in terms of incremental growth and capabilities. In this key category for you going forward in 'twenty, three and beyond from that investment. Thank you.

Sure.

<unk>.

So.

Two very different questions I guess I'll start with the second $135 million investment that's essentially all hitting the P&L George.

So thats, we lay up Capex investments and then the P&L investments and by and large those are operating expense investments and those are all around market development new innovation sustainability.

All the focus we've highlighted so this is this is a ramp up of the level of investment we've had we've been investing in the future growth of the business for a number of years, we stepped it up beginning about three or four years ago.

Speaker 5: We further accelerated it and just as we had commented on a year ago that we would be increasing our pace throughout 2021 and we're doing so again here in 2022 and the returns on this investment are quite clearly you're seeing the returns of all of our investments in the intelligent label space for the investments we made a few years ago and it's just the sign of confidence and all the increasing

Further accelerated it and just as we had commented on a year ago that we would be increasing our pace throughout 2021, and we're doing so again here in 2022.

The returns on this investment are.

Quite clearly youre seeing the returns of all of our investments in the intelligent labels space for the investments we made a few years ago and it's just a sign of confidence in all of the increasing.

Speaker 5: interactions we're having with various end markets and the tremendous potential for intelligent labels and more. And as far as when, these are investments more for the 2023 horizon and beyond.

Interactions, we're having with various end markets and see tremendous potential for for intelligent labels and more and as far as when these are investments more for the 2023 horizon.

Speaker 5: So that's where the investments are coming through. And specifically regarding your question about

So that's where the investments are coming through and specifically regarding your question about <unk>.

Speaker 5: Europe and there's a lot of factors but we're not going to get into any specifics about uh... what what might be happening uh... with uh... other companies and uh... and so forth but uh... what were we see what you see on that front forget thank you

Europe I mean, there's a lot of factors, but we're not going to get into any specifics about what might be happening with other companies.

And so forth, but we see what you see on that front.

Very good thank you.

Thank you.

Speaker 2: The next question comes from John McNulty, DMO. Please go ahead.

Yes.

The next question comes from John Mcnulty BMO. Please go ahead, yes, good afternoon, and thanks for taking my question I guess, the first one would just be a follow on to the $35 million operating expense.

Speaker 6: yeah good afternoon and thanks for taking my question i guess the first one would just be a follow on to the uh... to thirty five million dollar operating expense call out that you had around you know that the smart or intelligent labels and uh... and and sustainability i guess you've never really specifically called out a number like that before so i guess

Call out that you had around that.

The smart intelligent labels.

And sustainability I guess, you've never really specifically called out a number like that before so I guess question would be is it because something has really changed dramatically versus kind of the normal in terms of investment requirements or is it more a function of the revenue opportunity looks like it's coming in over the next couple of years is just that much bigger so it.

Speaker 8: question would be, you know, is it because something's really changed dramatically versus kind of the normal in terms of investment requirements, or is it more a function of.

Speaker 6: The revenue opportunity that looks like it's coming in over the next couple of years is just that much bigger so it's worthy of kind of calling out at this point. I guess how would you articulate that?

Worthy of calling out at this point I guess, how would you how would you articulate that.

Speaker 5: Yeah, so I think one is just the numbers larger and it's been growing and part of its commensurate with the opportunities that we see. So it's an increased space from what we had in 2021, which was roughly around 25 million or so, and that was an incremental increase of about 10 million from the year before that. And it's just feeding all these opportunities that we see in intelligent labels, but also around increasing our digital capabilities and so forth.

Yeah. So I think wanted to just the number is larger.

It's been growing and part of it is commensurate with the opportunities that we see so.

It's an increased base from what we had in 2021, which was roughly around $25 million or so and that was an incremental increase of about 10 million from the year before that and it's just seeding all these opportunities that we see.

In intelligent labels, but also around increasing our digital capabilities and so forth.

Speaker 5: So if you, if you look at this, these incremental investments that we've been making over time.

So if you look at this these incremental investments that we've been making over time.

Speaker 5: We've been funding them through just running the base business, and if you look at our overall level of SG&A and the gearing around that and so forth, we've been funding it through productivity, and this is something that is part of our core strategy. If you look at our five strategic pillars...

<unk> been funding them through just running the base business and if you look at our overall level of SG&A and the gearing around that and so forth and funding it through productivity and this is something that is part of our core strategy. If you look at our five strategic pillars, they're all intertwined and the third pillar is around a relentless focus on productivity.

Speaker 5: They're all intertwined. And the third pillar is around a relentless focus on productivity, and that's so that we can accelerate our investment in high-value categories and ensure we continue to invest in productivity to make sure the base is profitably growing, as well as expanding margins, and that's exactly what we're doing.

And so that we can accelerate our investment in high value categories and share we continue to invest in productivity to make this year. The base is profitably growing as well as expanding margins and thats exactly what were doing.

Speaker 5: Got it. And then maybe just to follow up, can you help us to understand the timing on the payback on an investment like this? Is it six months? Is it two years? Is it five years? I guess is there a way for us to think about it just in terms of in terms of the spend and then the timing of the return?

Got it and then maybe maybe just a follow up.

Can you help us to understand the timing on the payback on an investment like this.

Is it six months is it two years five years I guess is there a way for us to think about it just in terms of in terms of the spend and then the timing of the return on that.

Yes.

Speaker 5: Yes. There's a wide array of investments here. It's the 18 months to four and a half years is the right time horizon to be thinking about. Some are seeding completely new markets. Others are basically adding new capabilities in a new region for a program or a space that we know works in one region, works in another, and we know very much what the commercialization life cycle is.

Wide array of investments here.

18 months to four and a half years is the right time horizon to be thinking about some receiving completely new markets.

Others are basically, adding new capabilities and a new region for a program or <unk>.

It's a space that we know it works in one region, we're expanding in another and we know very much what the what the.

Commercialization lifecycle is there.

Speaker 2: Thank you. The next question comes from Anthony Pettinaria of City. Please go ahead.

Thank you. The next question comes from Anthony Pettinari of Citi. Please go ahead.

Good morning.

Given the price increases that you've announced and the cost inflation environment continuing in <unk>.

Speaker 9: Given the price increases that you've announced and the cost inflation environment.

Speaker 9: So based on what you're seeing right now, do you have a sense of when you might be fully caught up on costs or prices?

Just on what Youre seeing right now do you have a sense of when you might be fully caught up on costs or price cost neutral and what does that lag sort of look like versus previous cycles.

Understanding that we're sort of in it.

The unprecedented situation right now in inflation.

Yes, Anthony So I guess, starting with the lag I think we've been talking about for a few quarters. Since we saw the inflation really start to pick up.

Speaker 6: Yeah, Anthony, so I guess starting with the lag, I think we've been talking about for a few quarters since we saw the inflation really start to pick up, you know, early the mid last year. We still expect that lag to be in the quarter to a little more than a quarter of time period.

Early to mid last year, we still expect that lag to be in the quarter or two a little more than a quarter time period, I think as we move through across the last few quarters at the end of Q2, we would hope at that point, we might be covered by the end of Q by the end of 2021, we continue to see increasing pace of inflation in Q4, though as we talked about last quarter and that came.

Speaker 6: I think as we move through across the last few quarters at the end of Q2, we had hoped at that point we might be able to cover it by the end of 2021. We continue to see increasing pace of inflation in Q4, though, as we talked about last quarter, and that came in probably around mid-single digit sequentially Q3 to Q4.

In probably around mid single digit sequentially Q3 to Q4.

Speaker 6: We're continuing to see increase in inflation Q4 to Q1, also around the mid-single-digit level. Again, a little bit of a shift towards paper now in Q1 versus what it was last year.

We're continuing to see increase in inflation Q4 to Q1 also around the mid single digit level again, a little bit of a shift towards paper now in Q1 versus what it was last year.

Speaker 6: So we've continued to increase prices as we've moved across the course of last year. We've continued to announce new increases that took effect late last year, very early this year. So as soon as we see inflation start to stabilize, we'd still say it's a quarter or so for us to be able to close that gap fully.

So we've continued to increase prices as we moved across the course of last year. We've continued to announce new increases that took effect late last year very early this year. So as soon as we see inflation start to stabilize we'd still say, it's a quarter or so for us to be able to close that gap fully.

Speaker 5: Yeah, and just to build on that, I mean, we've, you know, we kept predicting it was a few months out when we would be able to narrow and close that gap. But, you know, the the forecast that the indices provide, as well as our own outlooks, you know, consistently, there's been more inflation continuing longer than we had anticipated. So whatever your own assumption is around when inflation will abate, assume a few months, a quarter after that is when we would catch.

And just to build on that I mean, we've.

We kept predicting it was a few months out when we would be able to narrow and close that gap.

But the forecast that the indices provide as well as our own outlooks are consistently theres been more inflation continuing longer than we had anticipated so whatever your own assumption is around when inflation will abate.

I assume a few months a quarter after that is when we would catch up.

Okay. That's helpful.

Speaker 9: uh... and you indicated you know if you have to go through the year would be back half-loaded you know is it fair to say that one q e p s might be down your rear and then in the second half you

And you indicated EPS growth for the year would be back half loaded.

Is it fair to say that <unk> EPS might be down year over year and then in the second half you accelerate to maybe double digit year over year growth or is there anything more you can say about the potential cadence of earnings growth as you go through the four quarters of the year.

Speaker 6: Yeah, certainly as you said, Auntie Q1 has a bit more challenge. You know, last year inflation was really just starting in the first quarter. So we just talked about a second ago. We still have a bit of a price inflation gap here in Q1 versus prior year. We also have the biggest currency impact on the year will be in the first quarter. That was the strongest currency rates last year as well. So I think we've said about 25 million of the currency had wind in the first half and the bulk of that is in Q1 also.

Yes, certainly as you said Anthony Q1 has been more challenged last year inflation was really just starting in the first quarter.

So we just talked about a second ago, we still have a bit of a price inflation gap here in Q1 versus prior year. We also have the biggest currency impact on the year will be in the first quarter that was the strongest currency rates last year as well. So I think we said about $25 million of the currency headwinds in the first half and the bulk of that is in Q1 also.

Speaker 6: At the same time, as we talked about a minute ago as well, we've been increasing the pace of our investments since the first quarter of last year. So, when we look at those things, we'll have some volume benefits, of course, year rear in Q1 with the continued growth of the business, get a bit of a price inflation gap still in the first quarter, and then the currency headwind and the continued investments. So, those are the kind of big buckets I'd think about in the Q1 bridge versus last year.

At the same time as we talked about a minute ago as well we've been increasing the pace of our investments since the first quarter of last year. So when you look at those things will have some volume benefits of course year over year in Q1 with the continued growth of the business got a bit of a price inflation gap still in the first quarter.

Then the currency headwind and the continued investments. So those are the kind of big buckets I would think about it in the Q1 bridge versus last year.

Yeah.

The next question comes from Josh Spector of UBS.

Please go ahead.

Speaker 10: Yeah, hi, thanks for taking my question. Just a similar question along the prior lines around investments that you're making, specifically on CapEx. That's a pretty big step up that you're pointing towards this year. Curious if there's anything in terms of one time, maybe major investments the next couple of years to think about, or if that's a higher level of organic investment we should be considering longer term for Avery.

Yeah, Hi, Thanks for taking my question.

Just similar question on the prior lines around investments that youre, making and specifically on Capex.

A pretty big step up that you are pointing towards this year curious if theres anything in terms of one time, making major investments in next couple of years to think about or if that's a higher level of organic investment we should be considering longer term for Avery.

Speaker 5: yes the investments are essentially just to fund our growth and invest for the growth were you know when you keep the compounding the level of growth and earnings we've been a uh... posting you're gonna have a capEx growing with that now as far as larger investments specifically the biggest

Yes. So the investments are essentially just to fund our growth and invest for the growth. We're when you keep the compounding the level of growth in earnings we've been.

Posting youre going to have capex rolling with that now as far as larger investments specifically the biggest.

Speaker 5: area of inference or capacity for intelligent labels, as you would expect. And this is – comes – there's some elements that come in large, chunky bits, such as adding buildings and so forth, and then there's adding the equipment, which is more scalable along the way. So we're looking at

Area of investments or capacity for intelligent labels as you would expect and this is comes there's some elements that come in a large chunk EBIT such as adding buildings and so forth and then there is adding the equipment, which is more scalable along the way. So we're looking at.

Speaker 5: adding to our actual manufacturing footprint in 2022. In a couple of locations, we just added Brazil recently. An operation there, build out and we're looking to further expand in each region of the world, our physical footprint as well as the equipment capacity. And so that's the biggest thing that maybe is a step function in 2022 and will bleed in the 2023 for this investment horizon.

Adding to our actual manufacturing footprint.

In 2022, and a couple of locations, we just added Brazil recently.

In operation their build out and we're looking to further expand in each region of the world, our physical footprint as well as the equipment capacity and so that's the biggest thing that maybe it's a step function in 2022 and will bleed into 2023.

This investment horizon.

Speaker 10: Okay, that's helpful. I'd just be curious if you could comment if you're seeing any production impacts now within China, or if your guidance is assuming any further disruption either within China or the rest of Asia that you're baking into guidance. And kind of along with the CapEx question, are you investing in additional source supplies to deal with, I guess, further impacts or potential disruptions in the future?

Okay. That's helpful and I was just curious if you could comment if youre seeing any production impact now within China or if your guidance, assuming any further disruption either within China or the rest of Asia that you're baking into guidance and kind of along with the Capex question are you investing an additional source.

Lives to deal with I guess further.

Packs of potential disruptions in the future.

Speaker 5: Yeah, so the first question around China. So all of our plans are operational. We're not having any lockdowns or experiencing any of those at the moment. So no, the things we talked about a quarter ago, we're largely focused in South Asia, Southeast Asia, specifically those are those are behind us.

Yes. So the first question around China. So all of our plants are operational we're not having any lockdowns are experiencing any of those.

At the moment, so the things we've talked about a quarter ago were largely focused in South Asia Southeast Asia, specifically those are those are behind us.

Speaker 5: And generally, what we're seeing even in China where there are stricter protocols tends to be more rather than entire industrial zones and so forth. It's kind of company by company or really even plant by plant when they do execute something. So we're not getting any collateral impacts, if you will, from other things that may be happening. But it's not as, I'd say, as stringent as what we maybe saw just nine months ago within that country.

And generally in what we're seeing even in in China, where there are stricter protocols tends to be more rather than entire <unk>.

Industrial zones, and so forth, it's kind of company by really even plant by plant when they do execute some things so we're not getting any collateral.

Impacts if you will from other things that may be happening, but.

It's not as I would say as stringent as what we maybe saw just nine months ago within within that country. So.

Speaker 5: So, as far as in our guidance, the way we look at it is, even if there's a lockdown for a couple of weeks or something that impacts a plant.

Far as in our guidance the way we look at it is even if theres a locked down for a couple of weeks or something that impacts a plant.

Speaker 5: that can have an impact on revenue immediately, but it doesn't affect end-to-end. And so we still see our ability that there will be any inventory in the system will be used up for a period of time. And then we'll go through overtime and extra shifts to catch up and keep the supply chains running. So that's not a real big impact overall on our guidance.

That can have an impact on revenue immediately, but it doesn't affect and demand and so we still see our ability that there will be any inventory in the system will be.

Used up for a period of time, then we will go through overtime and extra shifts to catch up and keep the supply chain is running so that's not a real big impact overall on our on our guidance.

Speaker 2: The next question comes from Jeffrey Zakalkas of J.P. Morgan. Please go ahead.

The next question comes from Jefferies. The carcass of Jpmorgan. Please go ahead.

Thanks, Thanks very much.

Speaker 9: In the quarter, what was the amount of raw materials that you couldn't recover by price? Was it about 40 million? And is that number getting bigger in the first quarter? Or is it getting smaller as best?

Got it.

In the quarter.

What was the amount of raw materials that you couldnt recover by price was at about $40 million and is that number getting bigger in the first quarter or is it getting smaller as best as you can tell.

Speaker 6: Yeah, I don't know. I mean, we didn't quote specifically what the gap was. We still had a gap in Q4 when we look versus prior year, I guess, if I if I look across the last last few quarters, as we said, we had about 20% inflation in the fourth quarter.

Yes, I don't know I mean, we didn't quote specifically what the gap was we still had a gap in Q4, when we look versus prior year I guess, if I if I look across the last last few quarters. As we said we had about 20% inflation in the fourth quarter.

Speaker 6: And from a pricing perspective, we talked about CORE. We had about five points of pricing Q3. And as we said here in Q4, we had an LG MLE's high single or very high single digit inflation in the fourth quarter. So we're starting to get closer to cover that, but we still do have a gap year-to-year. And we expect to have a little bit of gap in Q1 as we talked about earlier as well.

And from a pricing perspective, we talked last quarter, we had about five points of price in Q3, and as we said here in Q4, we had GM at least high single or very high single digit inflation in the fourth quarter. So we're starting to get closer to cover that but we still do have a gap year over year, and we expect to have a little bit of gap in Q1, as we talked about earlier as well.

So it's the gap getting bigger or is it getting smaller.

Speaker 9: So is the gap getting bigger or is it getting smaller? And then for my second question, in your slides for intelligent labels, you've got a split now between apparel and non-apparel at 25.7%.

And then for my for my second question in your slides for intelligent labels, you've got a split now between apparel and non apparel at $25 75.

Speaker 11: What was that split a year ago? And...

What was that split a year ago.

Speaker 11: is the change in that split due to the best-come acquisition, whatever the change is.

And.

Is the change in that split due to the best Com acquisition.

Whatever the change is.

Speaker 11: And are the growth rates of the apparel and the non-apparel piece the same? One's growing faster than another. What's happening?

And are the growth rates of the apparel and non apparel piece same one's growing faster than another what's happened here.

Speaker 5: Sure, so Jeff, just quick answer your first question. Thank you. Generally, the pace is roughly the same. The pace of inflation is higher. The pace of price increases are the same. So as far as the dollar gap, roughly the same. As far as intelligent labels, a 75, 25 split. Now that's not from the Vescom acquisition, as far as any shift, we did have a shift. We were a 90-10 split, pre the SmartTrack acquisition. Then SmartTrack had bigger presence outside of the peril.

Sure. So Jeff just a quick answer to your first question.

Generally generally the pace is roughly the same pace of inflation is higher the pace of price increases are the same so as far as the dollar gap roughly the same as far as intelligent labels. A 70 525 split now thats not from the <unk> acquisition as far as any shifts we did have a shift we were a 90 10 split pre the <unk> acquisition.

Then smart track had a bigger presence outside of apparel.

Speaker 5: And so, that's what moved with the biggest single dual step function shift in the mix between those two. And over time, yes, that has, and we expect to continue.

And so thats what moves was the biggest single who.

We will step function shift in the mix between those two.

And over time, yes that has and we expect to continue.

Speaker 5: to the apparel to be a bit smaller percentage of a much larger pie. And so that's what we are seeing and that's what you should expect to see. Now we're not going to share every single point, differential and so forth for strategic reasons. We will show more of the large proportionality of the portfolio. And so the last part of your question, yes, you would expect to see a much larger pie.

To the apparel to be a smaller percentage of a much larger pie.

And so thats, what we are seeing and Thats. What you should expect to see now we're not going to share every single point differential and so forth for strategic reasons, we will show more the large proportionality of the portfolio.

And so the last part of your question, Yes, you would expect Intel.

Speaker 5: intelligent labels for food and logistics.

Intelligent labels for food and logistics to be growing faster than what we're seeing for apparel.

Speaker 5: to be growing faster than what we're seeing for a parallel parallel.

Apparel as I said in.

Speaker 5: dollar terms will continue to be the majority of the growth for the coming few years. On percentage basis, the other categories will be growing faster. And then on a dollar basis, we expect that to be the biggest growth driver post the 2025 horizon. So that's a receiving multiple horizons of growth and opportunity here and seeing.

Dollar terms will continue to be the majority of the growth for the coming few years on percentage basis. The other categories will be growing faster.

And then on a dollar basis, we expect that.

Two.

Be the biggest growth driver post 2025 horizon, so thats proceeding multiple horizons of growth and opportunity here.

Speaker 5: A lot of great interest, potential and performance.

Seeing.

A lot of great interest potential and performance in apparel.

Speaker 5: in apparel, adjacent to apparel, so apparel customers moving into adjacent categories such as home goods and so forth, and then obviously in food as I shared the story and logistics and elsewhere.

Jason to apparel, so apparel customers moving into new adjacent categories, such as home goods and so forth.

And then obviously in food as I had shared the story in logistics and elsewhere. So.

Speaker 2: The next question comes from Adam Josephson. He bank capital markets. Let's go ahead. Mitch Craig.

The next question comes from Adam Josephson Keybanc capital markets. Please go ahead.

Mitch Greg and John Good morning, Thanks for taking my questions.

Speaker 5: Mitch, you described almost this rolling supply chain crisis earlier, first in the U.S. and then in Southeast Asia and now in Europe . I'm just wondering what exactly is embedded in your guidance as far as when you expect this European situation to resolve itself. I know the strikes are supposed to go on for another month or so, but it's been one thing after another. So I'm just wondering how you're thinking about the situation and how much longer lasting you expect it to be.

Mitch you described almost this rolling supply chain crisis earlier first in the U S. And then in South East Asia and now in Europe . I was just wondering what what exactly is embedded in your guidance as far as when this you expect this European situation to <unk>.

Resolve itself I know the strikes were supposed to go on for another month or so but it's been one thing after another and I was just wondering how youre thinking about the situation.

How much longer lasting you expect it to be and why.

Speaker 5: Well, we're not going to predict specifically when any specific matter and even the.

Well, we're not going to predict specifically when any specific matter and <unk>.

Even the supply chain constraints around.

Speaker 5: Supply chain constraints around, you know, look at what happened with the Texas storm. We actually, the limitation constraints on supply from just that event didn't end until sometime in the fourth quarter. And so it's just leveraging global supply networks to be able to manage around all that. And so if you look specifically at this paper, a range of guidance assumes that this is, we're gonna continue to have constraints in Q1 and a little bit going overall on Q, I'm sorry, in H1.

Look at what happened with the Texas Storm, we actually the limitations and constraints on supply for just that event didn't end until sometime in the fourth quarter and so it's just leveraging global supply networks to be able to manage around all of that and so if you look specifically at this paper or a range of guidance assumes that this is.

Are going to continue to have constraints in Q1, and a little bit overall in Q I'm sorry in H one.

Speaker 5: And that's where our range of guidance assumes overall. So if you look at our range of guidance from what Greg had shared around volume growth of Lota, mid-tingle digit.

And that's what our range of guidance assumes overall, so if you look at our range of guidance from what Greg its shared around volume growth of low to mid single digits and you consider how much intelligent labels is adding thanks to our volume growth assumption for right now for L. P. M is low single digits at the moment.

Speaker 5: and you consider how much intelligent labels it's adding, basically our volume growth assumption for right now for LPM is low single digits at the moment. And so we think the part of that is going to be just because of.

And so we think that part of that is going to be just because of some inventory that is in the system.

Speaker 5: some inventory that is in the system, as well as the Q1, just where we are both from constraints but also just tough comps situation overall. If you look at the volumes of where we were the past couple of years in Q1, they were quite high. And so, from that perspective, that's built in as well. So, still expect.

As well as the Q1, just where we are both from our constraints, but also just tough comps situation. Overall, if you look at the volumes of where we were in the past couple of years in Q1, they were quite high.

And so from that perspective, that's built in as well so still expect.

Speaker 5: LGM to be GDP plus overall the whole company obviously to be GDP plus and that's what our expectations are. The biggest questions are really what do you what do you say expecting around the MAC?

L L GM to be GDP, plus overall, the whole company, obviously, the GDP plus and Thats, what our expectations are the biggest questions that really what do you what do you say expecting around the macro.

Speaker 12: I appreciate that. And just one on that LPM volume growth, you mentioned low single digits. Can you just compare that to what you've seen thus far and then also just give us some flavor of what you're expecting by region along those lines this year? Obviously, China's had its difficulties. Brazil's having its difficulties. Europe's got obviously an energy crisis it's dealing with. So can you just talk about what you're seeing geographically in the context of that low single digit expectation for LPM?

I appreciate that and just one on that LTM volume growth you mentioned low single digits can you just compare that to what you've seen thus far and then also just give us some flavor of what you're expecting by region along those lines. This year, obviously China's had its difficulties, Brazil is having its difficulties Europe , Scott, obviously, an energy crisis, it's dealing with.

So can you just talk about what youre seeing geographically in that context.

<unk> of that low single digit expectation for LTM.

Speaker 5: Yeah, so as far as what we're expecting, what we're seeing already are asking them is the order pattern that we always, so the start of the year, the order patterns are not very meaningful because of the timing of lunar new year. And so a big portion of our growth is affected by that. And so that's something that doesn't make it very meaningful. If you look within what we're seeing in North America and Europe specifically.

Yes, so as far as what we're expecting what we're seeing already you're asking I mean, the order pattern.

So the start of the year the order patterns are not very meaningful because of the timing of lunar new year and so.

A big portion of our growth is affected by that and so that's.

Something that doesn't make it very meaningful if you look within what we're seeing in North America and Europe specifically.

Speaker 5: We basically are seeing high demand, high level of order patterns, and our actual output is roughly within that targeted range that we're talking about.

We basically are seeing high high demand high level of order patterns.

And our actual output is what roughly within that targeted range that we're talking about here.

The next question comes from Paris, <unk> Misra.

Speaker 2: The next question comes from Paritosh Misra of Barenburg Capital Markets. Please go ahead.

<unk> capital markets. Please go ahead.

Speaker 13: Thank you. Thanks for the slide 9 where you provided this engagement pie chart. Can you give us some sense as to how much this number of engagements increased versus let's say a year ago?

Thank you.

Thanks for the slide nine.

Provided this engagements Pie chart.

Can you give us some sense as to how much this number of engagements increased versus let's say a year ago.

Speaker 5: Yeah, so we're not quoting the number of engagements anymore. Partially just because there's got very large engagements and smaller specialty engagements in there. It's more to show the magnitude of how the pipeline looks relative to our current revenue and where you can see the increasing activity group grade activity within a parallel continued pipeline there as well as a broader pipeline activity going outside of the you take landing process part as I will.

Yes, so we're not quoting the number of engagements anymore, partially just because you've got very large engagements and smaller specialty engagements in there it's more to show the magnitude of how the pipeline looks relative to our current revenue.

You can see the increasing activity.

Great activity within apparel continued pipeline, there as well as a broader.

Pipeline activity going outside of apparel.

Speaker 5: So generally, we saw significant growth, as we talked about in the pipeline overall, particularly in 2020 throughout the early stage of the pandemic and early 2021.

Generally we saw significant growth as we talked about in the pipeline overall.

Particularly in 2020 throughout the early stages of the pandemic in early 2021, we purposefully shifted our focus to not feeding the pipeline as much as far as more so working through the pipeline. So we've seen a significant shift of.

Speaker 5: we purposely shifted our focus to not feeding the pipeline as much as far as more so working through the pipeline. So we've seen a significant shift of

Speaker 5: pipeline activity moving from business case into custom programs moving into pilots and so forth and that is having the the yeah expected outcome overall just things moving through the pipeline which is why we're expecting the growth on percentage terms to continue to be bigger outside of apparel as compared to what it is in apparel

Pipeline activity moving from business case into custom programs moving into pilots and so forth and that is having the.

Yeah expected.

Outcome overall, just things moving through the pipeline, which is why we are expecting the growth in percentage terms to continue to be bigger outside of apparel as compared to what it is in apparel.

<unk> still see significant dollar growth from apparel itself in 2022.

Thanks for the color mentioned, just as a follow up sticking with RFID. Just curious how you are managing the chip supply issues did you see much inflation in chip pricing last year.

Speaker 13: Thanks for the color Mitch. And just as a follow up, we're sticking with RFID. I'm just curious how you are managing the chip supply issues. Did you see much inflation and chip pricing last year?

Speaker 5: Yeah, so just as far as the supply chain, I mean, we are yeah, we're completely confident our ability to hit the 15 to 20% growth that we have targeted for long term for this business in 2022. The high end of that to be specifically that we've secured the supply. And we're seeing a lot of from a demand side, we probably could even go a little bit more than that. But we are right now just real time evaluating what are the chip availability through 2022 if you look at

Yes, so just as far as the supply chain I mean, we are we're completely confident in our ability to hit the 15% to 20%.

The growth that we have targeted for long term for this business in 2020 to the high end of that to be specifically that we have secured the supply.

And we're seeing a lot of from a demand side, we probably could even go a little bit more than that but we are right now just real time evaluating what are the chip availability through 2022.

You look at.

Speaker 5: Our own assessment and just broader assessments, the dynamics easing a bit, and I think we'll have a lot more insight here in the next three to six months. So that is a...

Our own assessment, and just broader assessments the dynamics easing a bit and I think we'll have a lot more insight here in the next three to six months.

So that is a.

Speaker 5: not a constraint to growth of hitting our 15 to 20% goal, but as far as some of the...

Not a constraint to growth of hitting our 50% to 20% goal, but as far as some of the <unk>.

Speaker 5: larger programs we're working on so forth those will probably have to be phased a little bit more 2023 um given given the situation so

Larger programs, we're working on and so forth those will probably have to be phased a little bit more 2023.

Given given the situations.

Speaker 5: Given our industry leadership position, we're working with all the key players throughout the supply chain on chips, and we are working with them to make sure there's ample supply for us as well as the industry at large. So that's something that we are working through, and again, confident we'll hit our number this year and continue to see the 15 to 20 percent growth over the long term.

Given our industry leadership position, we're working with all the key players throughout the supply chain on chips and we are.

Working with them to make sure there is ample supply for us as well as the industry at large so that's something that we are working through and again confident we'll hit our number this year and continue to see the 15% to 20% growth over the long term as far as pricing, yes. There has been some inflation on chips as well and we're also repricing our own.

Speaker 5: As far as pricing, yeah, there has been some inflation on chips as well, and we are also repricing our own RFID inlays outbound accordingly.

RFID inlays outbound accordingly.

Speaker 2: The next question comes from Christopher Natch of Loop Capital Markets, please go ahead.

The next question comes from Christopher <unk> of Loop capital markets. Please go ahead.

Speaker 4: Yeah, thank you. So my question's focused on the LGM business. First, there's been some consolidation in the pressure sensitive label stock space recently. So I'm just curious about your perception of that.

Yes. Thank you. So my question is focused on the <unk> business.

First there is theres been some consolidation in the press your pressure sensitive label stock space recently, so im just curious about your perception of that.

Speaker 5: would the consolidation that's gone on there create a competitor that would, I guess, influence

With the consolidation that's gone on there create a compare that wood.

I guess influence.

Speaker 12: an otherwise benign competitive dynamic. And then the second one is just industry checks have suggested to me that the industry, that industry is pretty tight in terms of meeting customer demand. One might even characterize maybe customers on allocation. Just curious if you would characterize it that way and if it's, if it's, if this is a dynamic that's only in North America, are you seeing it in other regions?

And otherwise benign competitive dynamic and then the second one is just industry checks of.

To me that the industry.

That industry is pretty tight in terms of meeting customer demand.

One might even characterize maybe customers on allocation just curious.

If you would characterize it that way and if it if it's if this is a dynamic that's only in North America are you seeing that other regions.

Speaker 5: would you say would if that is an actor characterization, would you say it's more a function of these logistics and supply chain constraints or more a function of just, you know, kind of robust demand?

Is it would you say.

That is it accurate characterization would you say, it's more a function of the logistics and supply chain constraints or were more a function of just.

Kind of robust demand.

So there's a few in there but thank you.

Speaker 5: Yeah, so as far as the consolidation, I mean, there's been some consolidation over the last few years in a couple of different places, whether it's in Europe or North America. We don't see a significant shift in the overall industry dynamics as a result of that, for your first question. And as far as your industry checks, about...

Sure Chris.

Yes, so as far as the consolidation I mean theres been some consolidation over the last few years and a couple of different places, whether it's in Europe or North America.

We don't see a significant shift in the overall industry dynamics as a result of that for your first question and as far as your industry checks about.

Speaker 5: maybe some allocations at the converter level and so forth.

Maybe some allocations.

At the converter level and so forth.

Speaker 5: I mean, basically, yeah, so demand is high, and we expect demand, I mean, just the increased consumption of consumer packaged goods has increased quite significantly. We expect that to be an increased trend, that increased trend to continue.

Basically yes, so demand is high and we expect demand I mean, just the increased consumption of consumer packaged goods has increased quite significantly we expect that to be a an increased trend that increase trend to continue we've talked about the increase in E Commerce and just variable information labels.

Speaker 5: We've talked about the increase in e-commerce and just variable information labels. We see that as an acceleration of a long-term growth trend that has occurred over the last couple years and see that continue. So demand basically accelerated within a short period of time and the industry at large is keeping pace with that.

See that as an acceleration of our long term growth trend that has occurred over the last couple of years and see that continue so demand.

<unk> accelerated within a short period of time.

And the industry at large is keeping pace with that.

If you then add in the supply chain constraints.

That limit supply a bit, but I think the industry and ourselves as well I think you're talking about specifically in North America, but had been able to manage through a lot of that but those headlines create concerns, which then have people order more and order more than maybe they even need which is why I commented that we believe that some of the growth.

It could be from inventory building downstream from us. So there seem just as we've got higher inventories.

It's due to the constraints as well as inflationary pressures people throughout the value chain tend to buy a little bit early just before our price increase and build some inventories.

And then just the I would say panic ordering to make sure people are in the queue, because I know that lead times for ourselves and I've commented on this in previous quarters as well as other players in the industry are getting longer they're placing their orders, even even longer as well so.

You see the industry responding in various ways, such as just saying you know.

The order patterns can differ too much from your previous order patterns and so forth just to make sure that we.

We are appropriately.

Appropriately managing demand.

That's helpful. I appreciate it and it sounds like that particular dynamic is one that is concentrated in North America.

North America and Europe .

Okay got it thank you.

The next question comes from the line of George Staphos Bank of America. Please go ahead.

Thanks, two quick follow ons, thanks for taking them guys.

There have been some announcements recently in the trade press about some of the logistics and freight companies.

Talking even more positively about RFID and its application to their business.

I recognize youre, probably seeing some benefits here is certainly a focus area for you can.

Can you stack rank.

I'll add from apparel and.

The end markets in terms of the uptake the growth pipeline.

As it's looking as we go out over the next four to five quarters are you seeing a material pickup in the implementation and the pipeline and the trial of RFID and smart labels and freight and logistics and I had a quick.

Net type question on El Jim.

Yeah, we're actually seeing I'd say that the momentum and energy is somewhat equal between food and logistics and but answering your question specifically around logistics.

We've already.

Our selling our solutions specifically in areas around hazardous materials.

Working with certain targeted areas for helping get through customs and so forth at the border and we are working with.

A number of logistics players, including some of the large ones about how to drive further automation and so forth across their network. So there's quite a bit of activity.

Often what happens when it talks about the.

The pipeline.

One of the steps and the pipeline is around custom solution, so that would be like dealing with the hazardous materials.

Worsening as batteries that you have to have certain protocols around.

Or how you handle battery so youll adopt within a specific category initially while piloting on a broader base and then eventually look to see how you adopt broader base. So.

The pilots I would say are the whole pipeline each stages is active and we are currently currently working it in multiple geographies by the way. So this is a U S Europe and in China.

Pipeline that were currently working.

Mitch I wanted to say that I saw a comment from one of these companies, suggesting that if they could.

It was possible they would consider using smart labels and RFID.

The majority of their parcels is that something that's being talked about.

I want to say uniformly but increasingly or is that.

More phantasma at this stage and we're looking at 510 years, there and then just the follow up question on LTM kind of a Nit question. When I look at the percentage of total that's high value. This year 21 versus last year. It ticked down just a little bit is that just the math of it you saw more pricing on your lower value added items hence.

They moved up to a greater degree and so therefore, they are a higher percentage of the mix than they were last year or is there something else going on in your mix of business that you need to correct. Thanks, guys and good luck in the quarter.

Yes, so as far as the logistics opportunity around intelligent labels in RFID. This is something that.

Yes, I mean, if you think about our future. The question is when does that materialize, it's around the big opportunity once you get past these.

Specific niche programs like Hazmat I mentioned earlier, it was really across the entire network and.

If you think through currently you've got a lot of dissimilar packages a high degree of <unk>.

Shape and size, obviously high degree of SKU complexity.

And right now they're doing it through scanning.

Visual scanning of Barcodes and some of that can be automated through conveyor belts, but a lot of it is also through handhelds and so forth and a lot of labor involved. So as you look at the overall objectives of supply chains in general and the logistics.

Providers.

Around speed and lower cost higher volume faster and lower cost and so that's where technology is being look to an hour.

Our technology solutions.

Built around RFID are a key enabler of that so those are very large unit programs. So the question is how does how do you ramp up towards that and so forth.

And we're engaging with.

As you would expect we're engaging with many players in the industry around this.

Yes, George I think on your other question.

Overtime, we consistently continue to look at and refine our our view of high value base and you look at things like specialty labels products that start out a specialty grow overtime to move to the base. So we continue to reevaluate that over time and obviously over the last couple of years, we've seen strong growth in kind of the base on consumer packaged goods and e-commerce driven growth.

As well so I think it's a combination of those things.

And at this time I'd like to turn the call back over to you for any closing remarks.

Alright, well. Thank you all for joining I, just want to reiterate where.

We remain confident the consistent consistent execution of our strategies will enable us to continue to meet our long term goals and make progress each and every year along the way.

Once again I want to thank our entire team for their efforts in continuing to focus on the success of all of our stakeholders. Thank you very much.

This does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your lines. Thank you and have a good day.

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<unk>.

[music].

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