Q4 2024 Avery Dennison Corp Earnings Call
This call is being recorded and will be available for replay after four P. M. Eastern time today until midnight Eastern time February five 2025.
Speaker Change: The replay please dial one 807.
77020.
Speaker Change: 030 or.
Speaker Change: 1609, 800 for international callers the conference I'd number is 585.
Speaker Change: <unk> 706.
John: I'd now like to turn the call over to John <unk>.
John: Every dentist is vice president of Finance and Investor Relations. Please go ahead Sir.
Speaker Change: Thank you Janine. Please note that throughout today's discussion, we'll be making references to non-GAAP financial measures.
Speaker Change: non-GAAP measures that we use are defined qualified and reconciled from GAAP on schedules a four to a eight of the financial statements accompanying today's earnings release.
Speaker Change: 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 Change: These forward looking statements are made subject to the safe Harbor statement included in today's earnings release.
Dion: On the call today are Dr Standard, President and Chief Executive Officer, and Danny Louche, Senior Vice President Chief strategy, and corporate development Officer, and interim Chief Financial Officer, I will now turn the call over to Dion.
Dion: Thanks, John and Hello, everyone I am pleased to.
Dion: <unk> reported another year of excellent progress towards our long term strategic and financial goals.
Dion: Sales grew 5% adjusted EBITDA margin expanded by 130 basis points and adjusted EPS grew 19% at the high end of our original guidance.
Dion: Both our materials and solutions groups delivered strong top and bottom line results with our base business is recovering from downstream inventory destocking in 2023 as expected.
Dion: <unk> productivity driven margin expansion.
Dion: And our high value categories delivered strong growth.
Dion: Once again, demonstrating the strength of the overall franchise.
Dion: Over the long term.
Dion: Overriding objective remains the same.
Dion: To deliver GDP plus growth and top quartile returns on capital a recipe for superior value creation.
Dion: In this context, we continue to make strong progress against our 2025 financial targets. Despite multiple macro disruptions in recent years recall. This represents our fourth set of long term goals after meeting or beating our previous three sets.
Dion: As you can see on slide six we have a proven track record delivering GDP plus growth margin expansion and top quartile returns across cycles, including delivering 9% earnings growth excluding currency. So far in this current cycle.
Dion: Strategically we continue to drive outsized growth in high value categories, enabling us to shift the portfolio to become more differentiated with higher growth and higher margin.
Dion: These categories now represent almost half of our portfolio and accounted for roughly three points of organic sales growth annually over the past four years.
Dion: Our high value platforms, excluding intelligent labels accounted for roughly two points in intelligent labels accounted for roughly one point.
Dion: More broadly.
Dion: Our consistent performance reflects the strength and the durability of our portfolio the resilience of our industry, leading market positions, our agile and talented global team.
Dion: The consistent execution of our key strategies.
Dion: This has.
Dion: And continues to provide us multiple levers to deliver strong results and compound earnings in various scenarios across cycles.
Dion: Our playbook is working well as we execute on our five strategic pillars across both our primary businesses driving outsized growth in high value categories growing profitably in our base businesses.
Dion: Leading at the intersection of the physical and digital.
Dion: Effectively allocating capital and relentlessly focusing on productivity and leading in an environmentally and socially responsible manner.
Dion: In materials group, our highest returns business, we delivered strong topline growth in 2024, driven by significant volume growth as our markets recovered from inventory Destocking in 2023 with strong margin expansion.
Dion: This reflects continued above average growth from our high value categories and presence in emerging markets two key catalysts for growth over the long term.
Dion: And ongoing contribution from productivity improvement initiatives.
Dion: Our leadership position in our base business remains strong we continue to differentiate ourselves through quality and service strong material science and process technology capabilities and sustainable innovation over the long term.
Dion: This foundation, along with the breadth of our overall portfolio provides the platform for us to drive growth as we balanced price volume mix and share, while reducing complexity and tailoring our go to market strategies.
Dion: Our strategy to expand our position in high value categories, which makes up more than a third of materials group sales, including specialty and durable labels graphics and reflective solutions and industrial tapes is working.
We delivered mid single digit organic growth for these products in 2024.
Dion: We continue to help our customers address complex challenges are.
Dion: Our efforts in 2024 resulted in new innovations and portfolio extensions that reduce supply chain waste extend product performance and lifespan and foster packaging circularity. A couple of highlights include introducing the first resized class certified label solution for high density polyethylene.
Dion: Celine consumer packaging to help brands address growing packaging recyclability and waste regulations.
Extending our portfolio of <unk> solutions to address to address our long standing productivity challenge without converting partners.
Dion: On the productivity front materials group continues to consistently deliver.
Dion: Focus on material reengineering lean operating principles and fixed cost innovation remain key to our success not just as a means to expand margins, but also to enhance our competitiveness, particularly in our base business and provide a source of funding for reinvestment.
Dion: In solutions group, we delivered strong top line growth and margin expansion driven by strengths in the base business is apparel industry volumes normalized following destocking in 2023 and growth in high value solutions.
Dion: Overall apparel growth was strong across all product customer format categories, including performance fast fashion and value.
Dion: Within high value solutions, which delivers higher than average segment margins embellish grew roughly 25% for the year, including the impact of acquisitions.
Dion: As a reminder, this growth platform is driven by increased consumer personalization and fan engagement in team sports.
Dion: And growth in performance related category.
Dion: We continue to invest organically and Inorganically and this now roughly $325 million platform that is growing roughly 15% annually on an organic basis over the last six years.
Dion: <unk> com, our market, leading suite of productivity and media solutions for the retail shelf edge delivered softer than initial lead anticipated sales in 2024, primarily on lower volume in the drugstore channel driven by store closures.
Dion: I am pleased to announce that we recently signed a new partnership with Cvs health to launch first come shelf edge solution chain wide with rollout in the first half of 2025.
Dion: We expect <unk> com will deliver strong growth in 2025, continuing to deliver above average growth over the long term.
Dion: Turning to enterprise wide intelligent labels as you can see on slide 11, we grew 9% on an organic basis in 2024 below our initial expectations, reaching roughly $900 million in revenue, including currency translation.
Dion: Strong growth in apparel categories up roughly 20% and general retail categories up more than 40% was partially offset by decline in logistics as we lap the largest RFID program single wave rollout in the industry's history in 2023.
Dion: Sales and logistics were lower in 2024 on the year on year comparison to the initial program build typical share normalization and the impact from packages that did not receive RFID enabled tags earlier in the year.
Dion: We continue to be the significant majority share provider for this customer on the strength of our partnership and value creation.
Importantly, as we did when we first drove adoption in apparel. We've also captured multiple learnings on the adoption dynamics in this new category that will positively support active pilot expansion and likely conversion in 2026.
Dion: In food, we announced a strategic collaboration with Kroger in October.
Dion: Focused on making possible more frequent and accurate inventory information to maximize freshness, reducing waste and perishable categories and improving the consumer and associate experience.
Dion: The collaboration will begin rolling out in the bakery department across the Kroger network in 2025.
Dion: This will be the first gross and moving to rollout for item level RFID tagging and represents a significant step forward for our intelligent labels platform and the industry overall and a very large addressable market with significant opportunity for growth in the years to come.
Dion: Across the enterprise, we expect to deliver 10% to 15% growth in intelligent labels in 2025, contributing 1% to one five points to total company growth as adoption continues in both retail and newer categories.
Dion: We expect end market and existing customers to deliver roughly 10% growth and are targeting pipeline conversion to deliver roughly another 5% growth.
Dion: We expect the pace of growth will increase throughout the year due to the targeted timing of pipeline conversions of key programs.
We continue to believe that physical items will need a digital identity to help solve challenges such as labor efficiency and supply chain effectiveness waste reduction secularity transparency and to help better connect brands and the consumers.
Dion: And our competitive advantages here are clear, we provide labeling materials that decorate and provide information on most of the world's items and we are the market leaders in the most ubiquitous broadly applicable sensing technology and UHF RFID.
Dion: This combined with our innovation leadership in our go to market strategy uniquely positions us to lead and win in multiple new categories with more than 250 billion units of opportunity.
Dion: The nascent point of industry growth.
Dion: As such we will continue to invest to capture the significant opportunity ahead as we grow the overall industry through both the solutions and materials group.
Dion: Stepping back as I reflect after five quarters of CEO.
Dion: My conviction in the earnings power and returns of our franchise remains high we have multiple levers individually and collectively that we've proven over time and through cycles can consistently drive outperformance for our stakeholders.
Dion: We are exposed to diverse and growing markets largely anchored in consumer staples.
Dion: We are industry leaders in our primary businesses with clear competitive advantages in scale and innovation.
Dion: We have a strong foundation of our base business, delivering GDP growth and strong free cash flow.
Dion: We have clear catalysts for significant long term growth in emerging markets and in high value categories that are competitively differentiated with higher margins and which are increasingly a larger part of our portfolio.
Dion: We have an engaged global team with a strong innovation and productivity culture that continually learns as agile and adjust to win and we have a strong balance sheet and disciplined approach to capital allocation that provides us significant investment flexibility to drive earnings growth.
Dion: And expand DVA.
Dion: Taken together.
Dion: These levers will enable us to not only continue to deliver on the potential of our business, but also expand that potential moving forward will.
Dion: We remain confident that we will continue to generate superior value creation through a balance of GDP plus growth margin expansion and top quartile returns over the long term.
Dion: In 2025, we expect to again deliver strong earnings growth with adjusted EPS of $9 80 to $10 20.
Dion: Roughly 10% excluding currency.
Dion: Want to thank our entire team for their continued resilience focus on excellence and commitment to addressing the unique challenges in 2024.
Speaker Change: And with that I'm now going to hand over the call to Danny <unk> as you likely know Danny has been with the company for 14 years, leading strategy and M&A and has been a critical thought partner for our leadership team over the last decade I'd like to thank Danny for stepping in as interim CFO, while Greg recovers and I'm happy to let you know that Greg has made great.
Dion: Progress and we look forward to is likely return in the spring.
Danny Louche: Thanks, Jim and Hello, everyone.
Dion: I will first provide some additional color on our fourth quarter results and our progress against our long term financial targets, then walk you through our 2025 outlook.
Dion: In the fourth quarter, we delivered strong adjusted earnings per share of $2 38.
Dion: In line with our expectations up sequentially and up 10% compared to prior year, driven by benefits from higher volume and productivity.
Dion: Compared to prior year sales were up three 5% ex currency and three 3% on organic basis is mid single digit volume growth was partially offset by deflation related price reductions.
Dion: Adjusted EBITDA margins were strong at 16, 4% in the quarter up 40 basis points compared to prior year with adjusted EBITDA up 6% compared to prior year.
Dion: Regarding productivity, we delivered $14 million of restructuring savings in the fourth quarter and $63 million of savings for the full year, continuing our track record of optimizing our cost structure, while investing to drive profitable growth.
Dion: We generated strong adjusted free cash flow of $280 million in the fourth quarter and $700 million in the full year with solid working capital results, resulting in a 100% adjusted free cash flow conversion.
Dion: As you can see on slide 12, we continued to execute our disciplined capital allocation strategy, our balance sheet remains strong with a net debt to adjusted EBITDA ratio of two.
Dion: At the end of the year.
Dion: Well as to continue to invest organically in our business steadily and consistently grow our dividend make acquisitions that help accelerate our strategies and strategically buy back stock to maximize our returns.
Dion: In 2024, we returned $525 million to our shareholders through the combination of dividends and share repurchases in the fourth quarter, we significantly accelerated our pace of share buyback purchasing roughly 700000 shares more than half of our repurchases for the year, we will continue to execute our capital allocation strategy.
Dion: And take advantage of market opportunities.
Dion: Turning to the segment results for the fourth for the fourth quarter.
Dion: Materials group sales were up 4% ex currency and organic basis, driven by mid single digit volume growth, partially offset by deflation related price reductions organically high value categories were up high single digits, driven by strength in specialty and durable labels and the base business was up low single digits.
Dion: Overall labor volume was modestly below our expectations driven by softer demand and customer managing their year end working capital.
Dion: Looking at labor materials organic volume trends versus prior year in the quarter.
Dion: North America was up mid single digits Europe was up low single digits Asia Pacific was up low single digits and Latin America was up mid single digits.
Dion: Also compared to Q4 last year on an organic basis graphic and reflective sales were up low single low to single digits and performance tapes and materials were comparable to prior year.
Dion: Materials group delivered a strong adjusted EBITDA margin of 17% in the fourth quarter up 80 basis points compared to prior year, driven by higher volume and mix and benefits from productivity, partially offset by the net impact of pricing and raw material input cost.
Dion: Regarding raw material costs globally, we saw very modest deflation sequentially in the fourth quarter and our current outlook is for similar trend sequentially in the first quarter.
Dion: Where applicable we have passed along price reductions to our customers.
Dion: Shifting now to solutions group sales were up 3% ex currency and on an organic basis with based solutions up mid teens in line with our expectations as a pair volume remained normalized.
Dion: In our high value solutions were down mid single digits below our expectations within.
Dion: Within high value solutions <unk> declined low single digits, but grew late in the quarter and we expect strong growth in the first half of 2025, partially driven by the new agreement, we signed with a leading U S health solution company that Dan mentioned earlier.
Dion: In our enterprise wide intelligent labels, while sales were up 9% for the year sales were down low single digits for the fourth quarter below our expectations with strong growth in the materials channel and mid single digit decline in solutions.
Dion: We delivered roughly 15% growth in apparel and more than 40% in general retail, which were more than offset by a decline in logistics.
Dion: Solutions group delivered strong adjusted EBITDA margin of 17, 8% down 40 basis points compared to prior year as benefits from productivity and higher volume were more than offset by higher employee related cost investment and mix.
Dion: Now shifting to our long term long term performance.
Dion: Some of you may recall that we embarked on our transformation strategy back in 2012, initially focused on strengthening our foundation, improving profitability, ensuring up our portfolio and balance sheet.
Dion: We then began to take a much more segmented approach to our strategy, improving our growth and margins in our base business as well as significantly increasing our focus on higher value products and solutions as a means to further accelerate our growth and expand margins.
Dion: Initially our focus was organic until we earn the right to leverage strategic acquisitions as a means to accelerate our strategies as well as to enter attractive adjacencies.
Dion: And over the last couple of years.
Dion: We've begun to build a new chapter, including leveraging both of our businesses to connect the physical and digital.
Dion: Throughout this journey, we have relied on our heritage of excellent execution continuous improvement and productivity, which enables us to consistently deliver strong results in multiple ways and in various scenarios all while we continue to deploy capital in a disciplined manner.
Dion: Invest organically in our business consistently grow our dividend acquire attractive assets at good value and earn a strong return on our share buyback.
Dion: This approach continues to serve us well into 2025 cycle, despite having to manage through compounding crisis.
Dion: Through the first four years of this cycle, our sales growth excluding currency was up 7% annually above our target of 5%, including two points of growth from M&A, a key part of our strategy over the long term.
Dion: Over the same period organic growth was up 5% annually with high value categories contributing roughly three points of growth.
Dion: Adjusted EBITDA dollars grew roughly 9% annually, excluding currency translation with adjusted EBITDA margin, expanding 110 basis points to 16, 4% in 2024 ahead of targets.
Dion: As for adjusted EPS, we delivered seven 4% growth annually.
Dion: While our reported results are lower than we have targeted for the cycle, we are achieving our strategic objectives in this period.
Dion: Excluding currency and the impact of acquisition intangibles amortization expense for acquisition that closed after our target was established already adjusted EPS growth was more was up more than 10% annually.
Dion: Finally, our return on total capital in 2024 were strong at 16% continuing to be top quartile.
Dion: As always our focus will continue to be on optimizing the balance of growth margin and capital efficiency to drive incremental EMEA over long term.
Dion: Now shifting to our outlook for 2025.
Dion: For 2025 overall, we anticipate continued GDP plus growth and expanding margins with adjusted earnings per share to be in the range of $9 80.
Dion: To $10 20.
Dion: Up 7% to 12%, excluding the impact of currency translation.
Dion: We have outlined the full year contributed contributing factors on slide 13 of our supplemental presentation materials.
Dion: To highlight a few of the key drivers of our guidance.
Dion: We anticipate 3% to 4% organic sales growth with mid single digit volume growth. We expect our base business will continue to grow at roughly GDP levels and high value categories to grow high single digits.
Dion: <unk> current rates, we estimate a roughly $30 million headwind to operating income from currency translation.
Dion: We estimate restructuring savings net of transition cost of roughly $40 million.
Dion: We will continue to target roughly a 100% adjusted adjusted free cash flow conversion.
Dion: And we will be migrating for our 52 or 53 week fiscal year to a calendar year, which will add roughly two extra working days at the end of Q4 2025.
Dion: In Q1, we expect adjusted earnings per share will be up slightly versus prior year, including a large currency headwind.
Dion: As 2025 progresses, we expect the pace of earning growth will increase each quarter driven by high value solutions Rollouts.
Dion: This labor volume growth and productivity actions early in the year, taking full effect in the second half.
Dion: In summary, we delivered strong results in 2024 at the high end of our original guidance and expect to deliver strong results in the year ahead.
Dion: At our 2025 midpoint, we will deliver sales and growth sales growth and margin above our long term targets and generate approximately 9% adjusted EPS CAGR ex currency.
Dion: While keeping our top quartile returns.
Dion: This also positions us well to deliver on the most recent 2028 targets we laid out in September.
Dion: We remain confident in our ability to continue to deliver exceptional value to all of our stakeholders through our strategies of long term profitable growth and disciplined capital allocation.
Dion: Now I will open up the call for your questions.
Dion: Thank you.
Speaker Change: Ladies and gentlemen, if you would like to register a question.
Speaker Change: Press Star followed by the number one on your telephone keypad.
Speaker Change: Confirmation of your request. If your question has been answered and you would like to withdraw your registration. Please.
Speaker Change: Please press the pound key.
Jeff: Jeff culminate all participants.
Speaker Change: Ask that you. Please limit yourself to one question and then return to the queue. If you have a question no question.
Jeff: One moment. Please for your first question.
Speaker Change: Our first question comes from the line of George Staphos from Bank of America. Please go ahead.
Jeff: Okay.
Speaker Change: Thanks, Hi, everybody. Good morning, My question Ken.
Speaker Change: Can you talk specifically about what your assumptions are for growth in logistics within IL for 2025, and just given the headlines today.
Speaker Change: It was about a large customer of yours.
Speaker Change: A large pullback in volume from one of their customers what effect if any is that having on your your IL.
Speaker Change: Growth plans, both in 'twenty five and longer term. Thank you.
Speaker Change: Hi, George This is Dan. Thank you for the question.
Speaker Change: We are planning for particularly in logistics segment.
Speaker Change: Is that we would assume slight decline between 'twenty four and 'twenty five.
Speaker Change: And specifically as it relates to this customer the impact that that you mentioned, we have already factored that in discussion with our customer into a 10% to 15% growth range.
Speaker Change: As part of our partnership agreement, we have aligned volumes for 2024 from 2024 to 2025.
Speaker Change: And we're not assuming any further adoptions during the 2025 calendar year as I pointed out more likely that those adoptions will continue in 2026, I will say that the experiences that we've learned through this initial adoption. This first category.
Speaker Change: And taking the low enough that we've taken from it are going to really provide impetus for us as we go to the pilot phase of that with all the other major logistics providers.
Speaker Change: Thank you. Our next question comes from the line of Ghansham Panjabi from Baird. Please go ahead.
Ghansham Panjabi: Yeah, Hey, guys. Good morning, Dani welcome to call and Thats also a great news.
Speaker Change: Sure Greg as well.
Ghansham Panjabi: I guess first off on the materials segment.
Ghansham Panjabi: What are you embedding for core sales growth for 2025, and how does that breakdown between volume and price.
Speaker Change: Hi, Ghansham, yes, so our assumptions for 2025 and our guidance range are really back to the macro starting point and we're factoring in not much change in GDP overall between 24 and 25 based on the recent most recent forecast and practicing more particularly if you look at the forecast for retail volumes globally. They are slightly up in <unk>.
Speaker Change: <unk> 25 versus 24, but still roughly at that 1% level overall feedback from our customers actually and from end customers.
Speaker Change: Depending on of course have been segments largely mirrors this and I suspect that reflects some of the degree of caution that its still out there, but at the macro level some of the policy level and some of the geopolitical level as well, so <unk>, 3% to 4% range assumes GDP growth in the base businesses at the company level somewhat adjusted for apparel cannibalization in Io and in the material.
Speaker Change: <unk> business, we're assuming kind of mid single digit volume growth and a little bit of price within that.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Jeffrey Zekauskas.
Speaker Change: J P Morgan.
Speaker Change: Please go ahead.
Speaker Change: Thanks, very much can you talk about raw material cost inflation or deflation for 2025.
Speaker Change: Okay.
Speaker Change: Yeah. Thanks, Jeff.
Speaker Change: So overall from a material inflation perspective, we're seeing a stable environment.
Speaker Change: Slide like I said in my prepared remarks slightly slight deflation.
Speaker Change: Deflation in Q4, and we expect to be slight deflation also in Q1.
Speaker Change: But overall stable environment into 2025 from a raw material price relationship. We think that the cycle is pretty much over and so we're kind of caught up that said on a year over year basis, we still see some raw <unk> raw material pricing in our in our model and our model for 2025 gig.
Speaker Change: The time lag between the time, we passed the prices on a significant deflation we saw at the end of at the end of 2023. So if you think about it. We've typically said there was one to two quarter lag between when we see a deflationary impact to pricing and so we are modeling some of that into Q1 and little bit into Q2 of 2025 and after that we.
Speaker Change: See stable stabilizing going forward, we will continue to manage kind of price raw material relationship and the way we've done it in the past where over a cycle, we expect it to be neutral and ask kind of benefiting from our cost cost out activities.
Speaker Change: Our next question comes from the line of Matt Roberts from Raymond James. Please go ahead.
Matt Roberts: Hey, good morning, everybody. Thank you for the time.
Matt Roberts: Yes, I wanted to ask on apparel and general retail general retailer accelerated in <unk>, 20% to 40, maybe you could talk about what drove that acceleration and how we should think about that progression in 2025, and similarly apparel decelerated.
Matt Roberts: We have easy comps on apparel in first half so how should we think about apparel growth.
Matt Roberts: First half versus the second half.
Matt Roberts: Basically I'm just trying to get confident on the acceleration in each of those given kind of each end market and intelligently.
Matt Roberts: Examples of some unique timing impacts.
Matt Roberts: Thanks, Thanks, Matt.
Speaker Change: Specifically in general retail, we continue to see an acceleration for IL volume as we went through the year and that's largely on a very large.
Speaker Change: Retailer continuing to drive compliance in the various categories that they've laid out for IL adoption.
Speaker Change: And while they may announce them and time it takes a while for those compliance to come through through the supply base and we're actively involved in supporting that supplier basis I'd drive through the compliance piece on the power level, we certainly saw <unk>.
Speaker Change: <unk> volume in 2020 format, largely because of the comparison to the normalization of volume in 24 relative to 23, when we saw the destocking.
Speaker Change: And particularly in IL apparel as we got towards the end of the year, we still had very strong IOL growth in apparel.
Speaker Change: Not quite as strong as we had anticipated in the fourth quarter, because there's one or two key program pieces that just move slightly from a timing perspective into this year when I look into general retail for 2025, we're going to continue to see strong growth as we move forward is that compliance but continues to accelerate.
Speaker Change: And new other general merchandise retailers are planned through the cycle for some degree of early adoption as well.
Speaker Change: And then we look at apparel level, we're expecting low double digit growth in apparel in 2025, IL. That's based on the apparel core business the market itself being somewhat around GDP to GDP minus typically as we see.
Speaker Change: Because of the cannibalization of the core business from IL, but and I'll, specifically that low double digit performance is predicated on existing customers that we're rolling out during last year and continuing into this year.
Speaker Change: Then we have on the upside in that 10% to 15% range I've talked about file we have to have some new customers plan for adoptions. We go sequentially through the year those can always be adjusted for timing, we have real confidence in our apparel performance overall as we look at IL I will make the point that when you look at our IL volumes overall for <unk> for 2020.
Speaker Change: $5, 10% to 15% range, the 10% range for us represents known programs Rolling now delivering volume right now we have a real strong line of sight to that the additional 5% growth as we go through that is unknown programs that are likely to adopt but again there may be some timing variances as we go through that.
Speaker Change: And this gives us the confidence that in the long term, we're going to continue to see that 15% plus growth rate over the long term.
Speaker Change: Yes, I can.
Speaker Change: Just jump in.
Speaker Change: Just to make sure because I think your question was a little bit of a first half second half also on apparel.
Speaker Change: So we do expect growth in apparel to accelerate throughout the year as some of these programs that I mentioned kind of rolling out.
Speaker Change: Our next question comes from the line of John Mcnulty from BMO capital markets. Please go ahead.
John Mcnulty: Yes. Good morning, Thanks for taking my question. So maybe just a follow up on that logistics customer with the announcement that was out today from them.
Speaker Change: Can you help us to think about the cadence of how.
Speaker Change: It was volume declines may roll through as we look through 2025 is it lumpy or is it relatively smooth have you seen any of that impact already whether it was in the fourth quarter or in early 'twenty five.
Speaker Change: Yeah.
John Mcnulty: Thanks, John.
Speaker Change: From our perspective.
Speaker Change: It's very difficult to call how that <unk>.
Speaker Change: Volume performance.
Speaker Change: That particular customers transition will happen during the year. They have given some guidance on that I think will generally in <unk>.
Speaker Change: Our strength in the way we are thinking about that partnership with them. We know what volumes, we have aligned with and put 2024, we've built that into our guidance and we're getting to in their commitment to us is on that that volume level leverage, which sorry on that volume level, which continues to provide us significant majority share in that account as we move.
Speaker Change: <unk>.
Speaker Change: Okay.
Operator: Our next question comes from the line of Josh Spector from UBS. Please go ahead.
Speaker Change: Okay.
Josh Spector: Yes. Thank you good morning, I just wanted to ask on solutions margins.
Speaker Change: Sequentially.
Speaker Change: Messy, but sales were up a pretty decent amount, but the EBITDA increase was relatively small so I don't know how much you would attribute that to mix cost or increase investments that you are doing.
Speaker Change: So one what happened in the quarter and then two as you look over the next year with the Rollouts that we're talking about what do you think the incremental margins look like in solutions.
Speaker Change: Okay.
Josh Spector: Thanks, Josh Yes, so I think you called the biggest issue, which was really mix in the quarter.
Speaker Change: As you heard.
Speaker Change: High value solutions within <unk> or within solutions was down mid single digits and so that was a big impact. The other thing. There were there was also a small relatively smaller kind of double double costs.
Speaker Change: On our Mexico plant that we've started in the quarter and so that was another another impact I would call out the margin year over year or for the full year has been up.
Speaker Change: 'twenty three to 'twenty four and to your last part of your question. We do expect margins to continue to expand next year as we accelerate as kind of a high value segment growth.
Speaker Change: For example, the <unk> program that Dan mentioned earlier, IL et cetera, all these elements should drive our margin higher in 2024 and 25 sorry.
Speaker Change: And maybe just one quick thing to add Josh.
Speaker Change: As Danny mentioned.
Speaker Change: The mix that we expect next year should potentially resulting in a higher flow through than average and I think you kind of know in this business, we tend to need about two points of growth on the topline that cover general inflation in most years and then we tend to see about a 30% flow through after that on volume.
Speaker Change: So depending on where the growth comes from and obviously with the expectations for better growth in high value categories, we could see a little bit above average in 2025.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Mike Rosslyn from curious Securities. Please go ahead.
Speaker Change: Yes, Thank you Dion.
Speaker Change: My question I'm happy to hear that that Greg.
Speaker Change: You mentioned that.
Speaker Change: One of the pump down the logistics part, where you mentioned that youre committed to those volumes for you this year.
Speaker Change: Obviously include the adjustment will be made even with your partners.
Speaker Change: <unk> last year.
Speaker Change: Format.
Speaker Change: And they will also choppy I guess I'm sure. The gate went into the year, maybe promise you a certain levels, yes. It was a little choppy and they didn't execute at the level that you expect.
Speaker Change: What gives you the confidence.
Speaker Change: We're going to be able to keep the volume they promise you this year.
Speaker Change: Secondly quickly.
Speaker Change: Of course that you mentioned that delayed some customer deployment getting pushed to 'twenty four 'twenty five.
Speaker Change: Now when they should be deployed in 'twenty five.
Speaker Change: Keep in mind with vertical.
Speaker Change: Thank you.
Speaker Change: Thanks, Mike.
Speaker Change: The confidence on the logistics volume I think we have high confidence based on what we know now.
Speaker Change: Learned a lot as I said, Mike through this kind of first adoption.
Speaker Change: That learning and that kind of first and second year really matters. When you come to sort of being able to plan out what is going to happen sequentially from a volume perspective service per our priority and also innovation that we bring to bear in the account as we continue to help them progress on their <unk> journey as well.
Speaker Change: I think overall, we did see some choppiness in the volume as I talked about during 2024 and some of the some of the products.
Speaker Change: RFID packages enabled packages. They went through that's all been resolved now.
Speaker Change: I contend that there their use of the technology has significantly continued to improve and they're talking about as you know in their journey moving it not just from where it is in the last mile fulfillment center to the van to the to the delivery points and ultimately actually back to the to the source as well and we are involved in all those segments of their development and providing.
Speaker Change: Innovation support and actually expertise as well.
Speaker Change: Referring to your second question around delays overall.
Speaker Change: Not atypical Mike that we see and particularly in some programs that may ship, one or two quarters, depending on how the timing of those guys. We've seen that historically Reits since the start of this journey theres nothing material or significant any of those changes.
Speaker Change: And as part of the reasons why when I look forward into this year into 2025, and I talked about the extra incremental 5% growth. We have planned those rollouts based on what we know and discussions we've had and the successful pilots and trials, but again that could move a month two months of the quarter, depending and Thats why we have this range of sort of 10% to 15%.
Speaker Change: I will also just take a step back Mike if you don't mind and just reflect for everybody.
Speaker Change: Just the history of what we've talked about for the business and I really want to reemphasize the strength of the franchise that we have we don't have just one lever.
Speaker Change: I know a lot of attention is on Io, we have multiple high value categories. As we've talked about we have <unk>. We have embellish, we have our materials group I barely segments. These contribute to currently more than we currently have a I'll I'll hit the greatest growth profile, but each one of these is going to grow significantly in 2025 on existing and new customers that we are going to rollout Tonight.
Speaker Change: Talk briefly around what we saw for.
Speaker Change: Four.
Speaker Change: Our <unk> business and for our <unk> com business as well, but that's not just the only lever in growth. We also have our base business is really anchored in consumer staples, providing GDP growth around the world. We have a really strong balance sheet that we're able to use to leverage on a disciplined way to drive earnings and we have a talented team in our market.
Speaker Change: <unk>, a really strong as well and if you think about over the past 10 years plus years, how we've been able to deliver in a matter of the circumstances, we have the levers in our franchise to be able to pull either singularly or collectively that will continue to allow us to deliver double digit earnings growth as we move forward.
Speaker Change: Our next question comes from that.
Speaker Change: Thank you from Barclays. Please go ahead.
Speaker Change: Great. Thanks, good morning.
Speaker Change: Can you maybe just speak more to the initial capital allocation plans. This year I think in the slides you talked about ample capacity for M&A and buyback. So I guess, just how does the M&A pipeline currently look and then the debt coming due this year do you intend to refinance all of that or pay some of that off with cash generation.
Speaker Change: Thanks, Michael Yes.
Speaker Change: So overall, our capital allocation strategy really hasn't changed and remains the same as what we have.
Speaker Change: Over the last few years.
Speaker Change: We've always said that we would like to have strong balance sheet that we can pursue strategic acquisitions that can help accelerate our strategies, our growth margins et cetera, as well as take.
Speaker Change: Advise of market dislocations.
Speaker Change: So for 2025, we will continue with the same playbook. We can continue to pursue M&A that is strategic to us that we can acquire at attractive valuation as well as take advantage of market dislocations in the market to share buyback like we've done in the fourth quarter. So I don't see anything materially.
Speaker Change: Changing we're in a great spot to be able to do to.
Speaker Change: To drive earnings growth as well as as well as EBITDA and will continue to.
Speaker Change: Execute on that strategy, Michael Let me just double click on something Danny said at the end I just want to reemphasize, how as an organization both at the leadership level through the organization by program by business unit, we are truly Eva focus really making sure that we optimize this balance of growth margin and capital efficiency and.
Speaker Change: And we have the balance sheet to be able to do that to drive any one of those levers as we see as well.
Speaker Change: As I said really strong foundation for the way that we can continue to compound earnings as we move forward.
Speaker Change: And one thing just to add on the.
Speaker Change: The debt side.
Speaker Change: Yes, we do have $500 million euro coming due in March so that'll be.
Speaker Change: Repaid and we actually.
Speaker Change: Issued 500 million of senior notes in early November.
Speaker Change: In the same regard at 375% to four repayments, so don't anticipate needing to raise in the near term yes.
John Mcnulty: Yes, thanks, Thanks John.
John Mcnulty: One just to link one other thing to this is that you can see on our several hundred materials as well that we're calling out interest net interest expense, we expect that to be slightly up next year because of that refinancing that we did at a higher rate than the bond that came due that is coming due in March.
Speaker Change: Thank you. Our next question comes from the line of Anthony Pettinari.
Speaker Change: <unk> from Citi. Please go ahead.
Speaker Change: Good morning, this is actually Brian Birchmeier sitting in for Anthony. Thank you for taking the question.
Speaker Change: Okay.
Speaker Change: A lot of discussion on potential tariffs in the United States right now just wondering if you can remind us.
Speaker Change: There's a free ship a meaningful amount of products from from Canada and Mexico.
Speaker Change: Our out of the United States.
Speaker Change: I know theres, an RFID facility.
Speaker Change: <unk> rebuilt Mexico I'm not sure if those come into the United States are taking place tariff just general thoughts on how tariffs could impact Dave Ray as we watch this play out thank you.
Speaker Change: Thanks, Brian Let me start at the high level, our direct exposure to tariffs is very limited.
Speaker Change: One of the strengths of our businesses that were really good at scenario planning, we've proven that over times and no matter, where they are or policy changes geopolitical risk we tend to have scenarios planned out for those.
Speaker Change: I'd also say.
Speaker Change: Point of general reference, we largely procure and produce and sell in the same region. When we procure internationally, we have multiple suppliers that we're able to leverage.
Speaker Change: This is actually say our global network is also allows us to have the capability to flex production wherever we need to and that's a really strong key competitive advantage for US Let me talk specifically about Enel theres been two discussion on two sort of areas. So one around China.
Speaker Change: China for us about half of our China business is actually in our materials group, which the majority vast majority of which is basically sold.
Speaker Change: <unk> in the Chinese market for label consumption in the Chinese market. The other half is in our apparel business, which we add tags and labels to garments that are largely exported to the United States.
Speaker Change: Europe, and we have seen and supported our brands over the last 10, 15 years and helping them manage migration if they see fit to want to move production from one country like China to another like Vietnam or to Honduras. We are enabled we enable that to do that given the strength of our network around the world.
Speaker Change: There may be some modest indirect exposure in this area to tariffs.
Speaker Change: In the event that higher costs on apparel effectively translate to somewhat lower overall demand in that that may be a possibility in Mexico, specifically, we do have some more direct exposure that we just recently built opened an established and are running a new Mexico intelligent labels facility, but as part of our scenario planning that we have enough network.
Speaker Change: <unk>, if we need to choose to move it around including in the United States should we need to do that as well overall Brian.
Speaker Change: Our last question comes from the line of George Staphos from Bank of America. Sir. Please go ahead.
George Staphos: Yes, Hi, I wanted to go to.
Speaker Change: Slide seven.
Speaker Change: Kind of a two part question on.
Speaker Change: <unk> com.
Speaker Change: Before I turn back into queue. So you say that in total high value categories. This year will be two to three five points of volume.
Speaker Change: IL, assuming your forecasts are accurate that's one to one five points as I take it.
Speaker Change: You would leave one to two points residual.
Speaker Change: If I then look at materials materials are saying you are looking for mid single digit growth out of your high value categories and materials.
Speaker Change: Which is about over a third of the materials segment and that in turn is whatever three quarters of the company. So thats another point plus.
Speaker Change: That doesn't leave a whole lot of growth I've done the math right.
Speaker Change: For growth in <unk> or <unk> com, even though it sounds like you are positive on both and certainly the best comp you talked about a new.
Speaker Change: Pharmacy customers that you're bringing in so help me square that circle in terms of if there is growth in <unk> com, while we're not necessarily seeing maybe more growth in high value Relatedly.
Speaker Change: Can you talk about.
Speaker Change: What the growth invest com should be you gave some color down early and then up later what growth are you looking for <unk> This year and what's the contribution to earnings there. Thank you guys.
Speaker Change: Alright, let me see if I can unpack that George captured those question.
Speaker Change: So let me just start with within Belloc, several we expect <unk> to grow double digits. This year.
Speaker Change: High single digit to low double digits, depending on kind of the performance overall and that's really anchored in a couple of things the actual industry four <unk>.
Speaker Change: Personalized engagement and fan engagement has continued to be very strong throughout the years as well and we've seen that industry RM business growing 15% plus over the last six years, particularly in this year, we're going to continue to see further rollouts of new customers and.
And this is both at the product level say imagine in performance Atlantic the badges branding.
Speaker Change: That go onto some opened up performance of late customers, particularly as one performance delayed customer looks likely to recover they move through this year on the team sports side, where we continue to win new team sports for decoration, both names numbers.
Speaker Change: Whether it's in Europe, and North America, and some of the professional Sports League and then also actually in stadium as we are providing the full customization facilities in many of the professional leagues.
Speaker Change: A great example that few into the Intuit stadium and saw exactly how our customized personalized and stadium, which we drive center, which we drive not only the hardware the software, but all the technology and the and the actual physical apparel itself. So we anticipate <unk> will continue to grow. There is also the additional piece of the preparation of the start of the World Cup 2006, which always.
Speaker Change: Add another boost typically for a various largest sporting events turning to vest com yes.
Speaker Change: Certainly the new customer that we wanted and rollout during the first half will add substantially to what we believe <unk> is going to sort of grow again high single to low double digits growth for this year.
Speaker Change: It's not the only customer they want they're going to continue to make progress with some new customers and particularly on the media solutions side as we leverage this increasing scale of that network, where we touched 60000 plus stores to drive media sales fall by Cpg's and retailers themselves.
Speaker Change: And so when you look at our range overall judge.
Speaker Change: And our range could it be stronger based on everything going away yet.
Speaker Change: Just to reinforce that the upper end of our range were looking at 12% earnings growth overall.
Speaker Change: I think John that captured all the questions. There I think I did.
Speaker Change: Thanks George.
Okay.
Speaker Change: Mr. <unk> there are no further questions at this time I will now turn the call back to you for closing remarks.
Speaker Change: Thanks Jeanine.
Speaker Change: We are confident we will continue to make strong progress against our long term goals in 2025 with the overarching objective to deliver GDP plus growth and top quartile returns a recipe for strong EBITDA growth, making superior value creation possible.
Speaker Change: Thank you for joining today. This now concludes our call.
Speaker Change: Ladies and gentlemen that concludes the conference call for today. Thank you for your opinion and you may now disconnect.
Speaker Change: Okay.