Q1 2024 Avery Dennison Corp Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in a listen-only mode.
Ladies and gentlemen, thank you for standing by.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.
Operator: Afterward, we will conduct a question and answer session. At that time, if you have a question, please press star, followed by the number one on your telephone. Welcome to Avery Dennison's Earnings Conference for the first quarter ended on March 30th, 2024.
That time, if you have a question please press star.
Followed by the number one on your telephone.
Speaker Change: Welcome to every denizens earnings conference call for the first quarter ended on March 30th 2024.
Operator: This call is being recorded and will be available for replay after 4 p.m. Eastern Time today and until midnight Eastern Time, May 1st. To access the replay, please dial 1-888-333-6483, 800-770-2030, or one 609. 800-9909 for International College. The conference ID number is 3299441. I'd now like to turn the call over to John Eble, Avery Dennison's Vice President of Finance and Investor Relations
Speaker Change: This call is being recorded and will be available for replay after four P. M. Eastern time today until midnight Eastern time may 1st.
Speaker Change: To access the replay please dial one.
Speaker Change: 870 702030.
Speaker Change: Or one <unk>.
Speaker Change: 609.
Speaker Change: 809, 909 for international callers.
Speaker Change: The conference I'd number is 3299441.
I'd now like to turn the call over to John I believe.
John: Every dennison Vice President of Finance and Investor Relations. Please go ahead Sir.
John Eble: 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 from GAAP on Schedules A-4 to A-8 of the financial statements accompanying today's earnings report. We remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are subject to the Safe Harbor Statement included in today's earnings release. On the call today are Deon Stander, President and Chief Executive Officer, and Greg Lovins, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Deon.
John: Thank you Mike. 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 from GAAP on schedules a four to eight of the financial statements accompanying today's earnings release.
John: We remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These.
John: These forward looking statements are subject to the Safe Harbor statement included in today's earnings release.
John: On the call today are Dr Stander, President and Chief Executive Officer, and Greg Lovins, Senior Vice President and Chief Financial Officer.
John: I'll now turn the call over to Dan.
Deon Stander: Thanks, John, and hello, everyone. We're off to a strong start to the year. In the first quarter, we again delivered sequential earnings growth, with earnings up significantly compared to the prior year and slightly above our expectations. We grew volume in both segments, significantly expanded margins, generated strong free cash flow, and delivered significant growth in intelligent labels. Materials Group once again demonstrated its resilience, delivering significant volume growth and margin expansion, both above expectation; downstream inventory de-stocking subsided, and volumes continue to normal.
Dan: Thanks, John and Hello, everyone, we're off to a strong start to the year.
Dan: In the first quarter, we again delivered sequential earnings growth with earnings up significantly compared to prior year and slightly above our expectations. We.
Dan: We grew volume in both segments significantly expanded margins generated strong free cash flow and delivered significant growth in intelligent labels.
Dan: Materials group once again demonstrated its resilience delivering significant volume growth and margin expansion, both above expectations as downstream inventory destocking subsided and volumes continued to normalize.
Deon Stander: Label volume in Europe was particularly strong as our teams managed through the now concluded Finnish port strike, which resulted in a slight customer order pull forward in the quarter. Volume in North America was up compared to the prior year and improved significantly on a sequential basis, although inventory de-stocking moderated in the quarter as expected. Overall, emerging market volume was strong, with particular strength in India and the ASEAN region. China was up mid-single digits in the quarter.
<unk> volume in Europe was particularly strong as our teams managed through the now concluded finished port strike, which resulted in slight customer order pull forward in the quarter.
Dan: Volume in North America was up compared to prior year and improved significantly on a sequential basis as inventory destocking moderated in the quarter as expected.
Dan: Overall emerging market volume was strong with particular strength in India, and the ASEAN region, and China was up mid single digits in the quarter.
Deon Stander: Solutions Group delivered strong top-line growth, driven by high-value categories and expanded margins, despite apparel imports continuing to be below demand. While the apparel import trend has started to show slight signs of improvement in North America, retailers and brands remain cautious in their near-term sourcing plans, and we continue to expect the apparel industry volumes to normalize mid-year. Enterprise-wide intelligent labels grew mid to high teens in the quarter, with particular strength in non-apparel categories, while apparel began to recover. In the quarter, logistics volumes, while strong, were below expectations due to lower domestic parcel volumes.
Dan: Solutions group delivered strong topline growth driven by high value categories and expanded margins despite apparel imports continuing to be below demand.
While the apparel import trend has started to show slight signs of improvement in North America.
Retailers and brands remain cautious in the near term sourcing plans and we continue to expect apparel industry volumes to normalize mid year.
Dan: Enterprise wide intelligent labels grew mid to high teens in the quarter with particular strength in non apparel categories, while apparel began to recover.
Dan: In the quarter logistics volumes, while strong were below expectations due to lower domestic parcel volume.
Deon Stander: Overall, the ability of our solutions to help address industry challenges, such as labor efficiency, waste, transparency, and consumer connection in very large volume categories like logistics and food, is increasingly resonating with customers. Key pilots and rollout are delivering significant value for our customers and compelling proof points for broader segment adoption. We continue to invest to capture the significant opportunity ahead as we grow the size of the overall industry, further advancing our leadership position at the intersection of the physical and digital. As we continue to see adoption in new categories and a rebound in apparel, we are targeting to deliver roughly 20% growth in our Intelligent Labels platform in 2020-21.
Overall, the ability of our solutions to help address industry challenges such as labor efficiency waste transparency and consumer connection in very large volume categories like logistics and food is increasingly resonating with customers key pilots and rollouts are delivering significant value for our customers.
And compelling proof points for broader segment adoption.
Dan: We continue to invest to capture the significant opportunity ahead as we grow the size of the overall industry.
Dan: Further advancing our leadership position at the intersection of the physical and digital.
Dan: As we continue to see adoption in new categories and a rebound in apparel, we are targeting to deliver roughly 20% growth in our intelligent labels platform in 2024.
Deon Stander: Stepping back, the underlying fundamentals of our business are strong. We are exposed to diverse and growing markets with clear catalysts for long-term growth. We are industry leaders in our primary businesses, with clear competitive advantages in scale and innovation. We have a clear set of strategies that have been key to our success over the long term and across a wide range of business cycles, and we are uniquely positioned to connect the physical and digital worlds to help address some of the most complex problems in the industries we serve.
Dan: Stepping back the underlying fundamentals of our business are strong we're exposed to diverse and growing markets with clear catalysts for long term growth.
Dan: We are the industry leaders in our primary businesses with clear competitive advantages in scale and innovation, we have a clear set of strategies that have been key to our success over the long term and across a wide range of business cycles, and we are uniquely positioned to connect the physical and digital to help address some of the most complex problems in the industries we serve.
Deon Stander: We remain confident that our strategies, along with our team's ability to execute in dynamic environments, will enable us to continue to generate superior value creation through a balance of GDP plus growth and top quartile returns over the long term. In summary, we delivered a strong quarter in a still uncertain environment and reaffirm our full year guidance to deliver strong earnings growth in 2020. I want to thank our entire team for their continued resilience, focus on excellence, and commitment to addressing the unique challenges ahead. And with that, I'll hand the call over to Greg.
Dan: We remain confident that our strategies along with our team's ability to execute in dynamic environments will enable us to continue to generate superior value creation through a balance of GDP plus growth and top quartile returns over the long term.
Dan: In summary, we delivered a strong quarter in a still uncertain environment and reaffirm our full year guidance to deliver strong earnings growth in 2024.
Dan: I want to thank our entire team for their continued resilience focus on excellence and commitment to addressing the unique challenges ahead and with that I'll hand, the call over to Greg.
Gregory S. Lovins: Thanks, Deon. Hello, everybody.
Gregory S. Lovins: Thanks, Dion Hello, everybody.
Gregory S. Lovins: In the first quarter, we delivered adjusted earnings per share of $2.29, up 6% sequentially and up 35% compared to the prior year, driven by benefits from higher volume and productivity. Compared to the prior year, sales were up 4% ex-currency and 3% on an organic basis, as higher volume was partially offset by deflation-related price reductions. Adjusted EBITDA margin was strong, at 16.3% in the quarter, up 270 basis points compared to the prior year, with adjusted EBITDA dollars up 25% compared to the prior year and up 4% sequentially. We generated strong free cash flow of $58 million in the first quarter, up $129 million compared to the prior year.
Gregory S. Lovins: In the first quarter, we delivered adjusted earnings per share of $2 29.
Gregory S. Lovins: Up 6% sequentially and up 35% compared to prior year.
Driven by benefits from higher volume and productivity.
Compared to prior year sales were up 4% ex currency and 3% on an organic basis as higher volume was partially offset by deflation related price reductions.
Gregory S. Lovins: Adjusted EBIT adjusted EBITA margin was strong at 16, 3% in the quarter up 270 basis points compared to prior year.
Gregory S. Lovins: With adjusted EBITDA dollars up 25% compared to prior year and up 4% sequentially.
Gregory S. Lovins: We generated strong free cash flow of $58 million in the first quarter.
Gregory S. Lovins: $129 million compared to prior year.
Gregory S. Lovins: And our balance sheet remains strong with a net debt to adjusted EBITDA ratio at quarter end of 2.3. We continue to execute our disciplined capital allocation strategy, including investing in organic growth through acquisitions while continuing to return cash to shareholders. In the first quarter, we returned $81 million to shareholders through the combination of share repurchases and dividends.
Gregory S. Lovins: And our balance sheet remains strong with a net debt to adjusted EBITDA ratio at quarter end of two three.
Gregory S. Lovins: We continue to execute our disciplined capital allocation strategy, including investing in organic growth and acquisitions, while continuing to return cash to shareholders.
Gregory S. Lovins: In the first quarter, we returned $81 million to shareholders through the combination of share repurchases and dividends.
Gregory S. Lovins: Turning to the segment results for the first quarter, materials group sales were up 2% ex-currency and on an organic basis compared to the prior year, driven by low double-digit volume growth, partially offset by deflation-related price reductions and mix. Looking at labeled materials organic volume trends versus prior year in the quarter, North America was up mid-single digits and up mid-teens sequentially. The downstream customer inventory destocking subsided in the quarter, as expected.
Gregory S. Lovins: Turning to the segment results for the first quarter <unk>.
Gregory S. Lovins: Materials group sales were up 2% ex currency and on an organic basis compared to prior year.
Driven by low double digit volume growth, partially offset by deflation related price reductions and mix.
Looking at label materials organic volume trends versus prior year in the quarter.
North America was up mid single digits and up mid teens sequentially.
Gregory S. Lovins: As downstream customer inventory destocking subsided in the quarter as expected.
Gregory S. Lovins: Europe was up significantly, more than 30%, as Q1 2023 was the low point in the destocking cycle. Volume was also strong sequentially, up low double digits. Emerging regions delivered strong volume growth as well, with Asia up mid-single digits, with particular strength in India and ASEAN, and Latin America up mid-table. However, compared to the prior year, sales in both graphics and reflective and performance tapes and medical categories were down mid-single digits. Materials Group delivered a strong adjusted EBITDA margin of 18.3% in the first quarter, up four points compared to the prior year, driven by benefits from productivity, higher volume, and the impact on margin percentage from deflation-related price reduction, partially offset by higher employee-related costs.
Gregory S. Lovins: Europe was up significantly more than 30% as Q1 2023 was the low point and the Destocking cycle.
Volume was also strong sequentially up low double digits.
Gregory S. Lovins: Emerging regions delivered strong volume growth as well with Asia up mid single digits with particular strength in India, and ASEAN and Latin America up mid teens.
Gregory S. Lovins: Compared to prior year sales in both graphics, and reflective and performance tapes and medical categories were down mid single digits.
Gregory S. Lovins: Okay.
Gregory S. Lovins: Materials group delivered a strong adjusted EBITDA margin of 18, 3% in the first quarter up four points compared to prior year.
Driven by benefits from productivity.
Gregory S. Lovins: Higher volume and the impact on margin percentage from deflation related price reductions.
Gregory S. Lovins: Partially offset by higher employee related costs.
Gregory S. Lovins: Regarding raw material costs, globally, we saw modest deflation sequentially in the first quarter, as expected. However, towards the latter part of the quarter, we began to see raw material costs increase in certain categories, paper in Europe in particular.
Gregory S. Lovins: Regarding raw material costs globally, we saw modest deflation sequentially in the first quarter as expected.
Gregory S. Lovins: Towards the latter part of the quarter, we began to see raw material cost increase in certain categories paper in Europe in particular.
Gregory S. Lovins: As such, we anticipate modest inflation sequentially in the second quarter and are addressing the cost increases through a combination of product reengineering and pricing actions. Given the timing of these pricing actions and our annual employee wage increases, we expect materials group margins to moderate slightly in Q2. Moving now to the Solutions Group.
Gregory S. Lovins: As such we anticipate modest inflation sequentially in the second quarter and are addressing the cost increases through a combination of product reengineering and pricing actions.
Given the timing of these pricing actions and our annual employee wage increases we expect materials group margins will moderate slightly in Q2.
Gregory S. Lovins: Shifting now to solutions group sales were up 10% ex currency and 6% on an organic basis.
Gregory S. Lovins: Sales were up 10% ex-currency and 6% on an organic basis, with high-value solutions up low double digits and base solutions up low single digits. In the quarter, enterprise-wide intelligent label sales were up mid to high teens, with strong growth in non-apparel categories, particularly logistics and general retail, and with apparel categories up both sequentially and compared to the prior year. Solutions Group's adjusted EBITDA margin of 16.1% was up 40 basis points compared to the prior year, driven by benefits from productivity and higher volume, although partially offset by higher employee-related costs and investment. Markets were down sequentially, driven by apparel and logistics seasonality and higher employee costs, including higher incentive compensation accruals, following lower payouts for 2023.
With high value solutions up low double digits and based solutions up low single digits.
Gregory S. Lovins: In the quarter enterprise wide intelligent label sales were up mid to high teens.
Gregory S. Lovins: With strong growth in non apparel categories, particularly logistics in general retail.
Gregory S. Lovins: And with apparel categories up both sequentially and compared to prior year.
Gregory S. Lovins: Solutions group adjusted EBITDA margin of 16, 1% was up 40 basis points compared to prior year.
Gregory S. Lovins: Driven by benefits from productivity and higher volume.
Gregory S. Lovins: Partially offset by higher employee related costs and investments.
Gregory S. Lovins: Margins were down sequentially, driven by apparel, and logistics seasonality and higher employee costs, including higher incentive compensation accruals following lower payouts for 2023.
Gregory S. Lovins: We anticipate sequential margin improvement in the second quarter, driven by higher volume and additional productivity initiatives. Now, the Shifting Door Outlook for 2024. For the year, we continue to anticipate adjusted earnings per share to be in the range of $9.00 to $9.50, up 17% at the midpoint, reflecting a more than 5% increase from our operational performance offset by a similar size headwind from currency translation. And as you'll recall, our outlook includes four key drivers of earnings growth in 2024, which are all on track.
Gregory S. Lovins: We anticipate sequential margin improvement in the second quarter, driven by higher volume and additional productivity initiatives.
Gregory S. Lovins: Now shifting to our outlook for 2024 for.
Gregory S. Lovins: For the year, we continue to anticipate adjusted earnings per share to be in the range of $9 to $9 50.
Gregory S. Lovins: Up 17% at the midpoint.
Gregory S. Lovins: Afflicting more than <unk> increase from our operational performance offset by a similar sized headwind from currency translation.
Gregory S. Lovins: And as Youll recall, our outlook includes four key drivers of earnings growth in 2024, which are all on track.
Gregory S. Lovins: The Normalization of Label Volumes Early in the Year, The Normalization of Apparel Volumes Mid-Year, Significant growth in intelligent labels as apparel rebounds and new programs continue to roll out, and ongoing productivity actions. We've outlined additional key contributing factors to our guidance on slide 12 of our supplemental presentation materials.
Gregory S. Lovins: The normalization of label volumes early in the year.
Gregory S. Lovins: The normalization of apparel volumes mid year.
Gregory S. Lovins: Significant growth in intelligent labels as apparel, rebalance and new programs continue to rollout and ongoing productivity actions.
Gregory S. Lovins: We've outlined additional key contributing factors to our guidance on slide 12 of our supplemental presentation materials.
Operator: In particular, focusing on the changes from our assumptions in January, we estimate roughly 4% organic sales growth, 50 basis points higher than our previous outlook due largely to slightly higher pricing than previously anticipated. We continue to expect high single-digit volume growth, partially offset by deflation-related price reductions for the year. We expect incremental savings from restructuring actions of more than $45 million, and we now anticipate a headwind from currency translation of roughly $5 million in operating income for the year, up from our previous outlook of modestly favorable.
Gregory S. Lovins: In particular and focusing on the changes from our assumptions in January.
Gregory S. Lovins: We estimate roughly 4% organic sales growth.
Gregory S. Lovins: 50 basis points higher than our previous outlook due largely to the slightly higher pricing than previously anticipated.
Gregory S. Lovins: We continue to expect high single digit volume growth, partially offset by deflation related price reductions for the year.
Gregory S. Lovins: We expect incremental savings from restructuring actions of more than $45 million.
Gregory S. Lovins: And we now anticipate a headwind from currency translation of roughly $5 million in operating income for the year.
Gregory S. Lovins: Up from our previous outlook of modestly favorable.
Operator: We estimate the Q1 customer pull-forward benefit that Deon mentioned earlier was roughly 5 cents of EPS and will come out of Q2. Overall, in Q2, we continue to expect improvement in the underlying business, and we anticipate EPS will be down slightly from Q1 due to the customer pull-forward. We continue to expect earnings in the second half of the year will be stronger than in the first half, with apparel industry volumes normalizing mid-year.
Gregory S. Lovins: We estimate the Q1 customer pull forward benefit that Dion mentioned earlier was roughly <unk> of EPS and will come out of Q2.
Overall in Q2, we continued to expect improvement in the underlying business.
Gregory S. Lovins: And we anticipate EPS will be down slightly from Q1 due to the customer pull forward.
Gregory S. Lovins: We continue to expect earnings in the second half of the year will be stronger than the first half with apparel industry volumes normalizing mid year.
Operator: In summary, we continue to strengthen our results as we advance our growth initiatives and our markets normalize. We continue to expect a strong rebound in 2024 across a variety of environments, and we remain confident in our ability to continue to deliver exceptional value through our strategies for long-term profitable growth and disciplined capital allocation. We will now open up the call to your questions.
Gregory S. Lovins: In summary, we continue to strengthen our results as we advance our growth initiatives and our markets normalize.
Gregory S. Lovins: We continue to expect a strong rebound in 2024 throughout a variety of environments and we remain confident in our ability to continue to deliver exceptional value through our strategies for long term profitable growth and disciplined capital allocation.
Speaker Change: I will now open up the call for your questions.
Operator: Ladies and gentlemen, if you'd like to register a question, press the star followed by the number one on your telephone keypad. You will hear confirmation of your request. If your question has been answered and you'd like to withdraw your registration, please press the star and the number one again.
Speaker Change: Ladies and gentlemen, if you'd like to register a question Press Star.
Speaker Change: <unk> followed by the number one on your telephone keypad.
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Speaker Change: If your question has been answered and you would like to withdraw your registration. Please press the star.
Speaker Change: One key.
Operator: To accommodate all participants, we ask that you please limit yourself to one question and then return to the queue if you have additional questions. One moment, please, for the first question. Our first question comes from the line of George Staphos from Bank of America. Please proceed with your question.
Speaker Change: Dan.
Speaker Change: To accommodate all participants we ask that you. Please limit yourself to one question and then return to the queue you have additional questions.
Speaker Change: One moment please for the first question.
Speaker Change: Our first question comes from the line of George Staphos from Bank of America.
George Leon Staphos: Please proceed with your question.
George Leon Staphos: Everyone, good morning. Good day. Hope you're doing well.
George Leon Staphos: Everyone. Good morning, Good day hope you're doing well.
George Leon Staphos: Thanks for the details, as always. Solid start to the year. Guys, one quick question for you on Intelligent Label.
George Leon Staphos: Thanks for the data elements as always.
George Leon Staphos: So I'll start to the year guys. One quick question for you on intelligent label.
George Leon Staphos: You know, this current quarter, you're guiding to organic sales growth for IL of approximately 20%. Prior to that, it was, you know, I think you're saying 20% plus. Can you remind us what's going on?
George Leon Staphos: This current quarter, you are guiding to organic sales growth for IL or approximately 20%.
George Leon Staphos: Prior it was I think you are saying, 20% plus.
George Leon Staphos: Can you remind us what's going on there are a couple of things you called out for first quarter or is that the only thing thats.
Deon Stander: There are a couple things you called out for the first quarter. Is that the only thing that's? I think you said parcel shipments were a little bit slower than expected in 1Q. Is there anything else behind that modest adjustment in your guidance for IL? And then, relatedly, if I could, just margins and solutions, were they as expected for the first quarter? Were there any headwinds that you hope will reverse in 2Q? Thank you.
George Leon Staphos: I think you said parcel shipments were a little bit slower than expected in <unk> is there anything else behind that modest adjustment.
George Leon Staphos: Your guidance for IL and then.
George Leon Staphos: Relatedly if you if I could just margins in and solutions, where they as expected for the first quarter or are there any headwinds that you hope will reverse into <unk>. Thank you.
Deon Stander: Hi George, and thanks for the question. As it relates to our IL guidance, we did see slightly lower volumes than we anticipated in logistics on lower parcel shipments, but we did also continue to see some apparel IL growth ahead of our base business as well in apparel at the moment. And that's largely because some of the new programs that we've been rolling out, including Inditex, where we're driving loss prevention, continue to be very strong as well.
Hi, George Thanks for the question as it relates to our <unk> guidance.
Speaker Change: We did see slightly lower volumes than we anticipated logistics on lower parcel shipments.
Speaker Change: And we but.
But we did also continued to see.
Speaker Change: Some apparel IOL growth ahead of our base business as well and apparel at the moment.
And thats largely because some of the new programs that we've been rolling out, including <unk>, where we are driving loss prevention continues to be very strong as well as we look forward, we still see the recovery of the apparel business in the second half to be a key driver of our IL growth as well and in addition, the continuation of our programs that are in flight and rollout.
Deon Stander: As we look forward, we still see the recovery of the apparel business in the second half to be a key driver of our IL growth as well. And, in addition, the continuation of our programs that are in flight and rollout, and some of the conversion of our pilots and trials to rollout as well. And those, George, as you know, can be episodic. They can switch from quarter to quarter. We fundamentally believe in the strength of the opportunity that lies ahead of us.
And some of the conversion of our pilots and trials to rollout as well and those George as you know it can be episodic they can switch from quarter to quarter.
Speaker Change: We fundamentally believe in the strength of the opportunity that lies ahead of us.
Gregory S. Lovins: Yeah, and George, too.
Speaker Change: I'll remind everybody that.
Gregory S. Lovins: Yeah, George, to your second question on apparel solutions margins overall, you know, we did expect some decrease sequentially, largely due to seasonality, with apparel and logistics now having a little more of a seasonality impact in Q1 versus Q4. So that was a part of what we had expected.
Speaker Change: All of these industries outside of apparel are still in the nascent stage. There are significant growth opportunities ahead, and we're going to continue to invest to drive and deliver on that 20% growth.
Speaker Change: Yes, George to your second question on apparel <unk> solutions margins overall, we did expect some decrease sequentially largely due to the seasonality with apparel and logistics now having a little more of a seasonality impact in Q1 versus Q4. So that was part of what we had expected and we also see some employee cost increases.
Gregory S. Lovins: And we also see some employee cost increases as we look quarter over quarter. I think we talked about these temporary cost savings last year that included items such as, you know, belt tightening, volume-related actions, things like that, but they also included incentive comp. And given the fact that last year, our incentive compensation was a bit or quite a bit lower than our target, given where our results came in versus our initial expectations, that was a sequential headwind for us that we expected as well.
Speaker Change: As we look quarter over quarter I think we've talked about these temporary cost savings last year that included items, such as belt tightening volume related actions things like that but it also included incentive comp and just given the fact that last year, our incentive compensation was a bit.
Speaker Change: Or quite a bit lower than than our target given where our results came in versus our initial expectations that was a sequential headwind for us that we expected as well now we look forward into Q2, I think I commented earlier, we do expect solutions to margins to increase quarter over quarter.
Gregory S. Lovins: Now we look forward to Q2. I think I commented earlier that we do expect solutions margins to increase quarter over quarter. Some of that's due to the volume, that seasonality that impacted Q1 starts to benefit from Q1 to Q2, and the business is continuing to drive further productivity there as well. So we would expect some sequential improvement in solutions margins as we move through the year.
Speaker Change: Some of Thats due to the volume that seasonality that impacted Q1 starts to benefit from Q1 to Q2 and the business is continuing to drive further productivity there as well. So we would expect some sequential improvement in solutions margins as we move through the year.
Speaker Change: Okay.
Speaker Change: Okay.
Ghansham Panjabi: Our next question comes from the line of Ghansham Panjabi from Baird. Please proceed with your question.
Speaker Change: Our next question.
Ghansham Panjabi: Comes from the line of <unk> Panjabi from Baird.
Ghansham Panjabi: Please proceed with your question.
Ghansham Panjabi: Yeah, thank you, Operator. Hello, everybody. Good afternoon.
Ghansham Panjabi: Yes. Thank you operator, Hello, everybody. Good afternoon, My Sunshine I guess first off on the.
Deon Stander: I guess first off on the apparel market assumption that, you know, normalization by the middle of 2024. Can you just give us a bit more insight as to what supports the confidence associated with that? And then on materials, I'm sorry if I missed this, if you already called this out, but what was the pricing impact specific to the first quarter, which seems like it would be quite significant and perhaps one of the biggest you've seen in, you know, multiple decades? And how should we think about that evolution into the second quarter and the back half of the year?
Ghansham Panjabi: Apparel market assumption that normalization by the middle of 2024.
Can you just give us a bit more insight as to what supports the confidence associated with that and then on materials I'm sorry, if I missed this if you already called the side, but what was the pricing impact specific to the first quarter, which it seems like it would be quite significant and perhaps one of the biggest you've seen in.
Ghansham Panjabi: Multiple decades, and how should we think about that evolution into the second quarter and the back half of the year.
Gregory S. Lovins: So, Ghansham, on the apparel recovery, and I'll let Greg handle the materials question. On the apparel recovery, we're seeing a couple of factors in play. I think we've been pretty clear all along that apparel imports continue to be significantly below 2019 levels, and what we saw in the last quarter is some slight improvement in our apparel import rates, particularly in North America. Not yet in Europe, but particularly in North America. We also know, having spoken to many of our customers, that the inventory volumes that they're having now are at a place where they feel very comfortable, generally across the board.
Ghansham Panjabi: So ghansham on the apparel recovery and I'll, let Greg handle materials question on their power recovery, we're seeing a couple of factors in place I think we've been pretty clear all along that apparel imports continued to be significantly below 2019 levels.
Ghansham Panjabi: And what we saw in the last quarter is some slight improvement in our apparel import rates, particularly north American not yet in Europe, but particularly in North America. We also know having spoken to many of our customers that their inventory volumes that they are having now are at the place where they feel very comfortable generally across the board that hadn't been.
Gregory S. Lovins: That hadn't been the case up until we got into the first quarter. And I think in the conversations we have with all of our customers, we know that while the environment is still uncertain, and they're certainly weighing that uncertainty into their near-term sourcing, the combination of slowly seeing some apparel imports starting to recover, as well as where their inventory levels are, and the fact that we are seeing some of that sentiment come back, would underpin the fact that we believe by the mid-year we'll tend to see apparel volumes normalize
Ghansham Panjabi: The case up until we got into the first quarter.
Ghansham Panjabi: And I think in conversations as we speak with all of our customers. We know that while the environment is still uncertain and certainly weighing in that uncertainty into their near term sourcing the combination of slowly seeing some apparel imports starting to recover as well as where their inventory levels are.
Ghansham Panjabi: And the fact that we are seeing some of that sentiment comeback wood.
Ghansham Panjabi: Would underpin the fact that we believe by the mid year will tend to see apparel volumes normalize.
John Mcnulty: All right, yeah, and on your second question, Ghansham, when we look at materials in the quarter, overall, as we talked about, our volume was up low double digits in the quarter, and that was partially offset by two factors. One of those was price, which was down mid to high single digits in the quarter versus last year, then also mixed down low single digits as well, as some of that or more of that destocking took place in our base business, with generally lower prices per unit.
Speaker Change: Alright, yes, and on your second question Ghansham, when we look at materials in the quarter overall as we talked about our volume was up low double digits in the quarter and that was offset by partially offset by two factors. One of those was price, which was down mid to high single digits in the quarter versus last year. Then also mixed down low single digits as well.
Speaker Change: As some of that or more of that Destocking took place in our base business with generally less lower prices per unit now on the price piece Q1 from a year over year perspective is the biggest headwind, we're really starting to see some of that sequential deflation last year really starting in the second quarter and that our pricing kind of followed that so the biggest year over year.
John Mcnulty: Now, on the price piece, Q1, from a year-over-year perspective, is the biggest headwind. We really started to see some of that sequential deflation last year, really starting in the second quarter, and then our pricing kind of followed that, so the biggest year-over-year pricing headwind will be Q1, and as I think I mentioned earlier in the prepared remarks, we are doing some pricing actions to deal with some of that targeted sequential inflation that we see in the second quarter as well, so we expect pricing sequentially to go up a bit from Q1 to Q
Speaker Change: Pricing headwind will be Q1, and as I think I mentioned earlier in the prepared remarks, we are doing some pricing actions to deal with some of that targeted sequential inflation that we see in the second quarter as well. So we expect pricing sequentially to go up a bit from Q1 to Q2.
John Mcnulty: Our next question comes from the line of John McNulty from BMO Capital Markets. Please proceed with your question.
Speaker Change: Our next question comes from the line of John Mcnulty from BMO Capital markets. Please proceed with your question.
Gregory S. Lovins: Yeah, good afternoon. Thanks for taking my question.
John Mcnulty: Yes. Good afternoon, thanks for taking my question.
Gregory S. Lovins: I wanted to dig into the materials group margin, which looks like it was a record, because it seems like there's a lot to unpack. You had a bit of pull forward in Europe. At the same time, you've made a lot of cost cuts, and you're getting back to kind of more normalized levels or volume levels to think about. So I guess, can you help us to think about the sustainability of this margin level as we kind of look through 24 and go forward?
John Mcnulty: Wanted to dig into the materials group margin.
John Mcnulty: It looks like it was a record and because it seems like Theres a lot to unpack you had a bit of pull forward in Europe.
John Mcnulty: At the same time, you've made a lot of cost cuts you are getting back to kind of more normalized levels. Our volume levels to think about so I guess can you help us to think about the sustainability of this margin level as we kind of look through 'twenty four and go forward.
John Mcnulty: Okay.
Gregory S. Lovins: Yeah, thanks, John. So I think you caught out a lot of buckets.
Speaker Change: Yeah. Thanks, John So I think you called out a lot of the bucket is really the big driver of margin when we look year over year and even sequentially as the volume increase so year over year, obviously, its very significant and sequentially. We had an improvement as well as we still have some destocking back in Q4 that we talked about as is.
Gregory S. Lovins: Really, the big driver of margin, year over year and even sequentially, is the volume increase. So year over year, obviously, it's very significant. And sequentially, we had an improvement as well as we still had some de-stocking back in Q4 that we talked about is behind us now. The other thing that the materials business has been significantly doing is driving productivity. So we've got some large restructuring actions as well as just ongoing ELS type of productivity initiatives that the team is continuing to drive.
Speaker Change: Is behind US now the other thing that the materials business has been significantly doing is driving productivity. So we've got some large restructuring actions as well as just ongoing Eos type of productivity initiatives that the team is continuing to drive so those volume and productivity initiatives are really driving the significant margin expansion and they are largely offsetting wage inflation and that incentive.
Gregory S. Lovins: So those volume and productivity initiatives are really driving the significant margin expansion, and they're largely offsetting wage inflation and that incentive comp headwind I talked about a minute ago. So teams have been doing a really good job driving that. When we look forward, I think I talked about last quarter, you know, we set our targets back in 2021 for the cycle that ends in 2025. We talked about materials margins getting around that 17% EBITDA level. Now, clearly, we've delivered that here in the first quarter and gotten pretty close to that in the back half of last year as well.
Speaker Change: Comp headwind I talked about a minute ago. The teams have been doing a really really good job driving that when.
Speaker Change: When we look forward I think I talked about last quarter, we set our targets back in 2021 for the cycle that ends in 2025, we talked about materials margins getting around that 17% EBITDA level now clearly we've delivered that here in the first quarter and gotten pretty close to that.
Speaker Change: Half of last year, as well and our focus is continuing to deliver on that that long term target as we stated and as always in the materials business or in all of our business is really it's a focus on balancing our topline growth balancing our margins our capital efficiency to drive EBITDA growth over time and this business has been a big driver for us for <unk>.
Anthony Pettinari: And our focus is continuing to deliver on that, that long-term target, as we stated. And as always, in the materials business, or in all our businesses, really, it's a focus on balancing our top line growth, balancing our margins, and our capital efficiency to drive EVA growth over time. And this business has been a big EVA driver for us for a long time. And we're going to continue balancing all those drivers to deliver incremental EVA into the future. And John, let me just add from a market perspective. We were very clear that we thought destocking ended in Europe last year in the third quarter and the U.S. roughly at the end of the fourth quarter of the year. And we're seeing that play out in conversations with our customers where there had been more limited visibility to end CPG demand.
Speaker Change: Time, and we're going to continue balancing all of those drivers to deliver incremental EBITDA into the future as well and John Let me just add from a market perspective, we were very clear that we saw destocking at it ended in Europe last year in the third quarter in the U S roughly and the end of the fourth quarter of year, and we're seeing that play out in conversation with our customers where there had been.
John Mcnulty: More limited visibility too and CPG demand that has expanded theyre seeing more confidence there.
Anthony Pettinari: That has expanded. They're seeing more confidence there. And their own volumes of inventory are much more normalized now than they have historically been over the last year and a half, as it were. And so that also underpins the fact that we're starting to see more normalized volumes. I put that also in the context of we continue to see macro retail volumes still relatively low both in the United States and in Europe. And so I think it speaks to also just the forward outlook that while confident in our continued normalization, there is still some caution out there.
John Mcnulty: And their own volumes of inventory are much more normalized now than they have historically been over the last year.
Speaker Change: Year and a half as it were.
John Mcnulty: And so that also underpinned. The fact, we're starting to see more normalized volumes I put that also in the context of we continue to see more.
John Mcnulty: Macro retail volumes still being relatively low both in the United States and in Europe, and so I think it speaks to also just afford outlook being while confident in our continued normalization. There is still some caution out there as well.
Bryan Nicholas Burgmeier: Our next question comes from the line of Anthony Pettinari from Citigroup. Please proceed with your question.
John Mcnulty: Our next question comes from the line of Anthony Pettinari from Citigroup. Please proceed with your question.
Bryan Nicholas Burgmeier: Hi, it's actually Bryan Burgmeier sitting in for Anthony. Thank you for taking the question. Just on the rising paper costs in Europe, you know. I know you cited a bit of a margin headwind next quarter. Can you just remind us how Avery has handled this type of inflation in the past or how long it typically takes you to get caught up on net price? And do you believe, with the finished strikes now resolved, order patterns and paper costs can kind of normalize, maybe in the second half of the year? Thanks.
John Mcnulty: Hi, This is actually Brian birchmeier sitting in for Anthony. Thank you for taking the question.
Bryan Nicholas Burgmeier: Just on the rising paper costs in Europe, I know you cited a bit of a margin headwind next quarter can you just remind us how avery has handled this type of inflation in the past or how long. It typically takes you to get caught up on net price and do you believe with the <unk>.
Bryan Nicholas Burgmeier: Finished strikes now resolved order patterns and paper costs.
Bryan Nicholas Burgmeier: Kind of normalize maybe in the second half of the year. Thanks.
Gregory S. Lovins: Yeah, thanks, Bryan. Traditionally, we've talked about it taking about a quarter to implement pricing from the time we start to see some of that sequential inflation, and we expect it to stick, at least. And, you know, back in the 21-22 timeframe, when we were seeing pretty significant sequential inflation each quarter, we had narrowed that gap a bit from that three months to a much smaller amount. Now, I think we're just starting to see this sequential inflation in the back part of Q1.
Speaker Change: Yeah. Thanks, Bryan so traditionally we've talked about it taking about a quarter to implement pricing from the time, we start to see some of that sequential inflation and we expect.
I expect to stick at least in back in 'twenty, one 'twenty two time frame and we're seeing pretty significant sequential inflation each quarter, we had narrowed that gap a bit from that three months to a much smaller amount and I think we're just starting to see this sequential inflation over the back part of Q1. So we would expect it to take a couple of months to get that in place.
Gregory S. Lovins: So we would expect it to take a couple months to get that in place at some point in the mid-to-late part of Q2. So overall, we don't see, you know, our visibility on materials markets or raw materials isn't that far in front of us, so we're really focused on what we're seeing right now in Q2. So right now, we don't have a lot of visibility past that, but I'm not expecting too much to happen past Q2 from a raw material perspective at this point. And Bryan, all I'd add is that
Speaker Change: Some clients some points in the mid to late part of Q2.
Speaker Change: So overall, we don't see our visibility on materials markets, our raw materials aren't that far in front of us. So we're really focused on what we're seeing right now in Q2.
Speaker Change: So right now we don't have a lot of visibility past that but not expecting too much to happen past Q2 from a raw material perspective at this point and Brian will lead to add is that unlike in 'twenty, two and then into 'twenty three when we saw that significant inflation fared and then followed by deflation. This one over here and particularly in Europe is related to the finished.
Gregory S. Lovins: And Bryan, all I'd add is that, unlike in 22 and then into 23, when we saw that significant inflation period and then followed by deflation, this one over here, and particularly in Europe, is related to the Finnish port strike, which has now ended and concluded. That's a good thing.
Strike, which has now ended and concluded that the good thing I think we're still going to see some of those ripple effects come through it's as Greg has alluded to but as the market leader, we tend to be very disciplined in our pricing approach and so when we see inflation, we tend to respond, but with productivity and price increases and when we tend to see deflation, we tend to unwind those as well appropriately to make sure.
Gregory S. Lovins: I think we're still going to see some of those ripple effects come through, as Greg has alluded to. But as the market leader, we tend to be very disciplined in our pricing approach. And so when we see inflation, we tend to respond both with productivity and price increases. And when we see deflation, we tend to unwind those as well appropriately to make sure that the custodians of the industry are managing the health and balance of the industry.
Sure that is the custodians of the industry, we're managing the health of the balance of the industry as well.
Jeffrey Zekauskas: Our next question comes from the line of Jeff Zekauskas, from J.P. Morgan. Please proceed with your question.
Speaker Change: Our next question comes from the line of Jeff Secaucus.
Jeff Secaucus: From J P. Morgan. Please proceed with your question.
Jeffrey Zekauskas: Thanks very much. I was looking at your slide 11 in your description of The Organic Growth and Solution. And I looked at your percentages, and so if intelligent labels are, you know, 32% growing, 17%. That's up five and a half percent, and EF, your high-value categories are 28%, you know, growing at low double digits. That's up another three, and then you get something from the base categories. So if you simply follow your percentages, it looks like your organic growth should be, I don't know, close to 9%. Is there some acquisition that's included in maybe this solution's high-value categories, or is it something else?
Jeff Secaucus: Thanks very much.
Jeff Secaucus: I was looking at your slide 11 in your description of the.
Jeff Secaucus: The organic growth and solutions.
Jeff Secaucus: And I looked at your percentages and so its intelligent labels.
Speaker Change: Is 32% growing 17%.
Speaker Change: That's up five 5%.
Speaker Change: Yeah.
Speaker Change: Your high value categories are our 28% growing at low double digits. That's up another three and then you get something from base categories. So if.
Speaker Change: If you simply follow Europe.
Speaker Change: Your percentages.
Speaker Change: Looks like your organic growth should be I don't know close to 9% is there some acquisition that's included.
Speaker Change: And maybe the solutions high value categories or is it something else and then secondly did your intelligent labels revenues shrink with a flat did they grow sequentially.
Gregory S. Lovins: And then secondly, did your intelligent labels revenues shrink? Were they flat? Did they grow sequentially?
Speaker Change: Okay.
Gregory S. Lovins: Yeah, thanks, Jeff. So to your point, you know, high-value categories in total, that includes intelligent labels and solutions, on that chart shows it's around 60% of this segment. So when you look at that, it is a large portion or a significantly large portion of the overall growth in the quarter. And as we said, the base business is up kind of low single digits there. In addition to that, there are acquisitions in the high value categories. Last year, we did three acquisitions in our external embellishment space, which is part of that high value segment category piece that's in our ex-currency growth year over year And Jeff, to your second question.
Speaker Change: Yeah. Thanks, Jeff So I think to your point.
<unk> categories in total that includes intelligent labels in solutions.
Speaker Change: On that chart shows it's around 60% of this segment.
Speaker Change: So when you look at that it is a large portion or a significantly large portion of the overall growth in the quarter and as we said the base business is up kind of low single digits there.
Speaker Change: In addition to that there are acquisitions in the high value categories last year, we did three acquisitions in our external embellishment space.
Speaker Change: Which is part of that high value segment category piece Thats in our ex currency growth year over year as well.
Speaker Change: And Jeff to your second question, our enterprise IOL revenue in dollar terms was sequentially lower than Q4 recall Q4 is a high watermark for logistics and for the apparel business Q1 sequentially is a lower quarter from a from an overall, both apparel and logistics.
Gregory S. Lovins: And Jeff, to your second question, our enterprise IL revenue in dollar terms was sequentially lower than Q4. Recall Q4 is a high watermark for logistics and for the apparel business; Q1 sequentially is a lower quarter from an overall view for both apparel and logistics, as it were.
Speaker Change: Is it worth.
Joshua Spector: Our next question comes from the line of Josh Spector from UBS. Please proceed with your question.
Speaker Change: Our next question comes from the line of Josh Spector from UBS. Please proceed with your question.
Joshua Spector: Yeah, hi, thanks for taking my question. So I wanted to dig in a little bit more on the cadence of earnings into the second quarter. So if I look at your history, typically, you're up something like $0.20 sequentially. Greg, you called out the $0.05 to pull forward. I guess if I say materials margins are down modestly, maybe that's $0.05. But, what else would be the other factors that would drive that lower sequentially and offset, frankly, all the normal seasonality here?
Joshua Spector: Yeah, Hi, Thanks for taking my question. So I wanted to dig in a little bit more on the cadence of.
Joshua Spector: And for the second quarter. So if I look at history. Typically you are up something like 20 sequentially. Greg you called out the <unk> pull forward I guess, if I say materials margins are down modestly maybe that's five.
Joshua Spector: I guess, what else would be the other factor that would drive that lower sequentially and off that frankly, all of the normal seasonality here.
Gregory S. Lovins: Yeah, so as you said, Josh, seasonality, the last few years have been pretty unique with a lot of de-stocking in 2022 and 2021, and then the de-stocking we saw in 2023.
Gregory S. Lovins: Yes, so as you said Josh.
Gregory S. Lovins: Seasonality of the last few years has been pretty unique with a lot of the Destocking in 2022, and 2021 and then the Destocking. We saw in 2023, but generally we would expect some seasonality benefit moving from Q1 to Q2, just like we talked about in the first quarter, we had a seasonality impact from inland based apparel and our Asia business.
Gregory S. Lovins: But generally, we would expect some seasonality benefit moving from Q1 to Q2, just like we talked about in the first quarter; we had a seasonality impact from, you know, base apparel and our Asia business from the Lunar New Year; we get a little benefit of that volume from Q1 to Q2. The same point I talked about; we have a little bit of sequential inflation that takes us a little bit, as I mentioned a few minutes ago, to cover that.
Gregory S. Lovins: Lunar new year, we get a little benefit of that volume from Q1 to Q2 at.
Gregory S. Lovins: At the same point as I talked about we have a little bit of sequential inflation that takes us a little bit as I mentioned, a few minutes ago to cover that and also our annual wage inflation for us kicks in on generally April 1st each year. So that's a sequential headwind from a.
Gregory S. Lovins: And also, our annual wage inflation for us kicks in generally on April 1st each year, so that's a sequential headwind from a cost perspective as well. And we'll obviously be implementing productivity initiatives to address that, but it is a sequential impact when we look Q1 to Q2. So again, and then that pull forward kind of brings it down.
Gregory S. Lovins: Cost perspective as well.
Gregory S. Lovins: And we will obviously be implementing productivity initiatives to cover that but it is a sequential impact when we look Q1 to Q2, so again and in that pull forward kind of brings it down without the pull forward our underlying business as I've said would be up sequentially.
Gregory S. Lovins: Without that.
Christopher Kapsch: Our next question comes from a line Chris Kapsch, from Loop Capital Mark. Please proceed with your question.
Gregory S. Lovins: Our.
Gregory S. Lovins: Question comes from the line of Chris Capps.
Christopher Kapsch: From loop capital markets. Please proceed with your question.
Christopher Kapsch: Yeah, hi, good afternoon. So my question is focused a little bit more on strategically addressing the intelligent label opportunity. And it's, you know, that RFID adoption expands beyond traditional, say, item-level apparel and into other verticals. Based on sidebar conversations we've had and at a recent conference, we talked about this, but your efforts to use, you know, sort of value selling techniques to capture more of the value that a program brings to bear in a given application or vertical beyond just sort of a cost plus pricing paradigm that might be the case with a more straightforward solution like logistics, shipping labels, for example.
Christopher Kapsch: Yes, hi, good afternoon. So my question is focused a little bit more strategically.
Christopher Kapsch: Addressing the intelligent label opportunity and.
Christopher Kapsch: It's that RFID adoption expand beyond traditional say item of apparel and.
Christopher Kapsch: And into other verticals.
Christopher Kapsch: Based on Sidebar conversations we've had and at a recent conference we talked about this but your efforts to use sort of value selling techniques to capture more of the value that our program brings to bear in a given application or vertical beyond just sort of a cost plus pricing paradigm that might be.
Christopher Kapsch: The case with a more straightforward solution, Mike like logistics and shipping labels. For example, so I'm just wondering.
Christopher Kapsch: So, I'm just wondering, you know, in terms of that value proposition for a use case that brings something like inventory accuracy or helps with shrink or replenishment or prevents stockouts or helps sales. Just wondering if that, you know, approaching these potential new use cases with more of that value selling proposition, how is that going? And is this something that could, you know, sort of change the paradigm in terms of potential margins for this business as growth persists going forward? Thank you. Thanks, Christopher.
Christopher Kapsch: In terms of that value proposition for use case that brings.
Christopher Kapsch: Like inventory accuracy or to help with shrink or replenishment where to prevent stock outs or to help sales just wondering if that.
Christopher Kapsch: Approaching.
Christopher Kapsch: These potential new use cases with more but that value selling proposition how is that going and is this something that could.
Christopher Kapsch: Does it change the paradigm in terms of the potential margins for this business has growth persist going forward. Thank you.
Deon Stander: Thanks Chris for the question. Yeah, so I just want to remind Chris that in the discussion we had as well, one of the reasons why we have such conviction around the growth potential of business is just the scale of the opportunities in these adjacent categories. And I think I've said before, you know, food is by an order of magnitude four or five times larger than our apparel opportunity in total, and we're only there 40 or so penetrated.
Speaker Change: Thanks, Chris for the question. So I'll just remind Christmas in the discussion we had as well as one of the reasons why we have such conviction around the growth potential of the business is just the scale of the opportunities in these adjacent categories and I think I've said before in our food is in an order of magnitude four or five times larger than our apparel opportunity.
Speaker Change: In total and were only there 40 years or so penetrated logistics is 60 billion units relative to apparel at 40 billion in all those segments are split the Nascency, where we see an opportunity to help sort of connect the physical and digital by leveraging both our RFID capability in some of our other cables, we have around data management and material science as well and.
Deon Stander: Logistics is, you know, 60 billion units relative to apparel at 40 billion, and all those segments are still at the nascency where we see an opportunity to help sort of connect the physical and digital by leveraging both our RFID capability and some of our other capabilities we have around data management and material science as well. And that gives us confidence as we look forward to know that we've been investing in this, and now as these markets slowly start to adopt it, we're starting to see that the benefits that we think are there are manifest in those in those segments, and we believe will also be ubiquitous when we look at broader segment adoption as well.
Speaker Change: That gives us the confidence as we look forward to know that we've been investing in this and now as these markets slowly start to adopt we're starting to see that the benefits that we think are there are manifest in those in those segments and we believe will also be ubiquitous when you look at the broader segment adoption as well I think the approach that we've taken as we've looked at.
Deon Stander: I think the approach that we've taken as we've looked into these segments is one that we've been building on for a while, Chris, which is, what is the scale of the differentiation of the total solution we're able to bring to bear on those opportunities? And clearly, the more differentiated, the easier it is for us to have more of a premium of value that we're able to recover, but also, the scale of the opportunity of the value we're providing our customers is actually large in that regard.
Speaker Change: To these segments is one that we've been building on for a while Chris which is what is the scale of the differentiation of the total solution, we're able to bring to bear in those opportunities and clearly the more differentiated the easier. It is for us to have more of a premium or value that we were able to recover but also the scale of the opportunity of the value. We're providing our customers is actually larger in that regard.
Deon Stander: And we're seeing some of that come to bear in some of the trials and pilots and small rollout that we're doing right now. I think as we move forward, the concept of having a broader solution sale, including hardware, software, sensing technologies, material science, is at its infancy, but I think it will play a larger part in our future as we move forward in the years to come.
Speaker Change: And we're seeing some of that come to bear in some of the trials and pilots and small rollout that we're doing right now I think as we move forward the concept of having a broader solution sell including hardware software and sensing technologies in material science is at its infancy, but I think it will play a larger part in our future as we move forward in the years to come.
Michael Roxland: Our next question comes from a line from Michael Roxland, from Truist Security. Please proceed with your question.
Speaker Change: Our next question comes from the line of Michael <unk> from.
Michael: Tourists securities.
Michael: Please proceed with your question.
Nico Puccini: Thank you, Deon, Greg, and John, for taking my questions. This is Nico Puccini on for Mike today.
Michael: Thank you Dr Gregg and John for taking my questions. This is <unk> on for Mike today.
Deon Stander: You kind of touched on it so far today, but I was just hoping we could dial in more. Recognizing that the timing of these IL deployments and pilot programs can change quarter to quarter, could you maybe give us a tentative read on 2024, what the cadence for IL deployment looks like this year? I think you call that a large logistics company that you're still working through, in the first half. But are there any other industries that might benefit this year?
Michael: You kind of touched on it so far today, but just hoping to get dialing more recognizing that the timing of these deployments and pilot programs can change quarter to quarter.
Speaker Change: Could you maybe give us a tentative read our 2024.
The cadence for IL deployment looks like this year.
Speaker Change: Thank you called out a large logistics company that that Youre still working through I believe in the first half but are there any other industries that might benefit this year.
Deon Stander: Hi Nico. The current forecast that we have and the way we're seeing the year unfold, basically all of the programs that are in rollout or in expansion, we have confidence that they will continue to do that. Now, there may be one or two quarters that things, you know, switch in terms of department changes and categories. Where we have pilots and trials, our effort is focused on trying to, particularly in food and logistics, move those to more adoption quicker than we are currently planning at the moment.
Hi, Nicole.
Speaker Change: The current forecast that we have and the way we're seeing the year unfold is basically all of the programs that are in rollout or an expansion we have confidence that they will continue to do that although we're always maybe one or two quarters that things switched in terms of deposits and changes in categories.
Speaker Change: Where we have pilots and trials our effort is focused on trying to particularly in food and logistics move those to more adoption quicker than we are currently planned at the moment and when we see that that helps drive the broader industry adoption that we're anticipating I think if I took a step back overall, we know that.
Deon Stander: And when we see that, that helps drive the broader industry adoption that we're anticipating. I think if I took a step back overall, we know that the benefits case in some of these new segments is very compelling. But it is going to be down to getting one or two customers started and making sure that those benefits are visible across the industry. And that's typically when we see adoption start to take off. And in that context, those episodes can be episodic.
Speaker Change: The benefits case in some of these new segments is very compelling, but it is going to be down to getting one or two customers started and making sure that those benefits are visible across the industry and that's typically when we see adoption start to resonate and in that context. Those can be episodic that can be very lumpy as well as we've seen in the history of apparel I'd say the one.
Speaker Change: Difference between apparel and the other segments that we knows and the original apparel rollouts over time, we have to both prove the technology and validate the business case that doesn't remain that's not the case now as we look at these new technologies new.
Deon Stander: They can be very lumpy, as we've seen in the history of apparel. And so the one difference between apparel and the other segments that we know is that in the original apparel rollout, over time, we had to both prove the technology and validate the business case. That doesn't remain, and that's not the case now as we look at these new technologies.
Speaker Change: Segments, because the technology is proven.
So in the discussions, we're having and the pilots and trials that we are doing at the moment. We can clearly see the benefits are there and we're working hard including across a broader range of logistics companies and a broader range of food companies to make sure that we're bringing them to full rollout in time.
George Leon Staphos: Our next question comes from the line at George Staphos from Bank of America. Please proceed with your question.
Speaker Change: Our next question comes from the line of George Staphos from Bank of America. Please proceed with your question.
George Leon Staphos: Hi guys, thanks for taking the follow-ons. I'll ask them in order just to clear the backlog and then turn it over to everybody else. So, on the finish strikes, I know that for now they're over, but it's still not clear whether they are ultimately not going to resume again, recognizing they are much more political in nature this time around versus a couple years ago. I assume that since your experience from a couple years ago, you've improved your supply chains and your ability to access paper if you need to, but could you sort of affirm that and give a little bit of color on what you've done there just to make sure that if the strikes resume, you're still in a good position? Secondly, you know, it's like politics.
George Leon Staphos: Hi, guys. Thanks for taking the follow ons.
George Leon Staphos: Ask them in sequence just to clear the backlog and then turn it over to everybody else.
So on the Finnish strikes I know that for now they're over but it's still not clear whether they are ultimately not going to resume again recognizing there are much more political in nature. This time around versus a couple years ago I assume the experience from a couple of years ago.
George Leon Staphos: You've improved your supply chain and your ability to access paper, if you need to but could you sort of affirm that and give a little bit of color on what you've done there just to make sure that if the strikes presume you are still in good position secondly.
George Leon Staphos: <unk>.
George Leon Staphos: It's like politics, whether is local but it does seem like there's been a bit of a weather factor across a lot of the larger regions in North America in terms of being a little bit cooler and wetter.
Deon Stander: Weather is local, but it does seem like there's been a bit of a weather factor across a lot of the larger regions in North America in terms of being a little bit cooler and wetter. Has that had any effect, from your vantage point, on parcel shipments and your label consumption that you might see come back later in the year? And then, lastly, I assume it's just because we've gotten back to normal, but that helpful slide that you've had over the last couple quarters where you show some of your internal indicators, I didn't see it in this deck. Should we assume that means we're back to normal, and that's a good thing? Thanks, guys, and good luck in the quarterfinals.
George Leon Staphos: Had any effect from your vantage point on parcel shipments in your label consumption that you might see come back later in the year and then lastly, I assume it's just because we've gotten back to normal but that helpful. Slide that you've had over the last couple of quarters ratio. Some of your internal indicators I didn't see it in this deck should we assume that means were.
Speaker Change: Back to normal and that's a good thing thanks, guys and good luck in the quarter.
Deon Stander: Thanks, George. I'll take the first two and then Greg can deal with the last one.
Speaker Change: Thanks, George I'll take the first two and then Greg can deal with the last one as it relates to the finished strike yes.
Gregory S. Lovins: As it relates to the finished trike, yes, the current resolution is as it is. It's resolved. But that doesn't preclude the fact that, moving forward, that may change in time as well, George. I think the thing that we have lent on is two elements. One, we specifically, since the last experience we went through when we saw these significant supply chain constraints, we've deepened and broadened our supply chain fairly dramatically. Our sources of raw materials are no longer just single regional, but they are more multi-regional and multi-supplier sourced.
Speaker Change: Current resolution is as it is its result, but that doesn't preclude the fact that moving forward that may change in time as well George I think the thing that we have learnt on has two elements one.
Speaker Change: We specifically since the last experience went through when we saw the significant supply chain constraints, we have deepened and broadened our supply chain fairly dramatically our sources of raw materials on loan longer it's just single regional sourced.
Speaker Change: But they are more multi regional and multi supplier source and one of the reasons why we have seen no interruption. During this period ourselves in fact, our service excellence actually improved across the world was because we have this resilience that we put into into our supply chain as well I think the second thing as a result, we are also really linked into trying to deeply understand.
Gregory S. Lovins: And one of the reasons why we have seen no interruption during this period ourselves, in fact, our service excellence has actually improved across the world, was because we have this resilience that we've put into our supply chain as well. I think the second thing is we've also really invested in trying to deeply understand, both from a process and a data perspective, where end consumption is likely to be and how that relates to the various inventory levels across CPGs, our converters, and our retail customers as well.
Speaker Change: Both from a process and a data perspective, where end consumption is likely to be and how that relates to the various inventory levels across cpg's.
Converters, and our retail customers as well I think that helps give us greater confidence in how we manage our own supply chain and what we do in that as well.
Gregory S. Lovins: I think that helps give us greater confidence in how we manage our own supply chain and what we do in that as well. For example, I think it relates to parcel shipments. We saw that certainly local domestic parcel shipments are lower, and I think that's public knowledge now as well. And our anticipation is that I think parcel shipments are going to be largely characterized by how U.S. retail and U.S. GDP do as well. And at the moment, I think that still remains slightly uncertain.
I think it relates to parcel shipments.
Speaker Change: We saw that certainly parcel local domestic parcel shipments are lower.
Speaker Change: I think that's public knowledge now as well.
Speaker Change: And our anticipation is that I think parcel shipments are going to be largely characterized by how U S retail and U S. GDP goes as well.
At the moment I think that's still remains slightly uncertain.
Gregory S. Lovins: Yeah, thanks, Deon. So on the internal indicator slide, George, to your point, yeah, I mean, I think, as we've talked about, our materials business is getting back to normal. We think that destocking is behind us, as we've said. So, you know, part of why we didn't feel the need to provide those indicators as well, given that we are back to normal in that business, or getting there at least. And on peril, as I think Deon talked about a couple minutes ago, we're also heading in the right direction there, and continue to feel confident that by mid-year, we're kind of back to more normalized levels there. So, just as you said, we're getting back to more normalized states here, as we move through the course of the year.
Speaker Change: Okay.
Speaker Change: Yeah. Thanks, Dan so on the internal indicators slide George to your point, Yes, I mean, I think as we've talked about our materials business is getting back to normal we think that destocking is behind us as we have said so part of why we didn't feel the need to provide those indicators as well given that we are back to normal in that business are getting there or at least an unparalleled I think dion talked.
Speaker Change: A couple of minutes ago. We're also heading in the right direction. There continue to feel confident that by mid year, we're kind of back to more normalized levels. There. So just as you said, we're getting back to more normalized state here as we move through the course of the year.
Speaker Change: Okay.
Deon Stander: Mr. Stander, there are no further questions at this time. I will now turn the call back to you for any closing remarks.
Speaker Change: Mr. Stander there are no further questions at this time I will now turn the call back to you for any closing remarks.
Operator: Thank you all for joining the call today, and while the environment does remain dynamic, we remain extremely confident in our position and our prospects and our ability to deliver GDP plus growth and top quartile returns over the longer term. Thank you all. Ladies and gentlemen, that does conclude the conference call for today.
Stander: Thank you all for joining the call today and while the environment does remain dynamic we remain extremely confident in our position and our prospects and our ability to deliver GDP plus growth and top quartile returns over the longer term. Thank you tool good day.
Speaker Change: Ladies and gentlemen that does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
Operator: Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.
Speaker Change: Okay.
Speaker Change: Disconnect your line.