Avery Dennison Q4 2025 Avery Dennison Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Avery Dennison Corp Earnings Call
Speaker #1: Welcome to Avery Dennison's earnings conference call for the fourth quarter, ended on December 31, 2025. During the presentation, all participants will be in listen-only mode.
Operator: To Avery Dennison's earnings conference call for Q4, ended on 31 December 2025. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a Q&A section. At that time, if you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and enter the queue. As a reminder, this webcast is being recorded and will be available for replay on the Avery Dennison Investor Relations website. I'd now like to turn the call over to William Gilchrist, Avery Dennison's Vice President of Investor Relations. Please go ahead, sir.
Operator: To Avery Dennison's earnings conference call for Q4, ended on 31 December 2025. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a Q&A section. At that time, if you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and enter the queue. As a reminder, this webcast is being recorded and will be available for replay on the Avery Dennison Investor Relations website. I'd now like to turn the call over to William Gilchrist, Avery Dennison's Vice President of Investor Relations. Please go ahead, sir.
Speaker #1: Afterward, we will conduct a Q&A section. At that time, if you would like to ask a question, please press star one on your telephone keypad to raise your hand and enter the queue.
Speaker #1: As a reminder, this webcast is being recorded, and will be available for replay on the Avery Dennison Investor Relations website. I'd now like to turn the call over to William Gilchrist, Avery Dennison's Vice President of Investor Relations.
Speaker #1: Please go ahead, sir.
Speaker #2: Thank you, Miriam, and welcome to Avery Dennison's fourth quarter and full year 2025 earnings conference call. Please note that throughout today's discussion, we'll be making references to non-GAAP financial measures.
William Gilchrist: Thank you, Miriam, and welcome to Avery Dennison's Q4 and full year 2025 earnings conference call. 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 A4 to A8 of the financial statements accompanying today's earnings release. We remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the Safe Harbor Statement included in today's earnings release. On the call today are 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.
William Gilchrist: Thank you, Miriam, and welcome to Avery Dennison's Q4 and full year 2025 earnings conference call. 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 A4 to A8 of the financial statements accompanying today's earnings release. We remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the Safe Harbor Statement included in today's earnings release. On the call today are 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.
Speaker #2: The non-GAAP measures that we use are defined, qualified, and reconciled from GAAP on Schedules A4 to A8 of the financial statements accompanying today's earnings release.
Speaker #2: 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 made subject to the safe harbor statement included in today's earnings release.
Speaker #2: 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
Speaker #2: Deon. Thanks, Gillian.
Deon Stander: Thanks, Gillian, hello everyone. We delivered solid full year 2025 results with adjusted EPS of $9.53 and $707 million of adjusted free cash flow, a performance that once again underscores the durability of our franchise and our ability to activate multiple levers across a range of macro scenarios. While ongoing trade policy changes and softer consumer sentiment have been headwinds for our business, we successfully leveraged our productivity playbook to maintain an adjusted EBITDA margin of 16.4%. Our results demonstrate the resilience of our model as we remain focused on driving outsized growth in high-value categories, accelerating innovation to advance our differentiation, delivering productivity to protect base margins, and allocating capital effectively. Turning to the fourth quarter segment results, Materials Group reported sales increased 5%.
Deon Stander: Thanks, Gillian, hello everyone. We delivered solid full year 2025 results with adjusted EPS of $9.53 and $707 million of adjusted free cash flow, a performance that once again underscores the durability of our franchise and our ability to activate multiple levers across a range of macro scenarios. While ongoing trade policy changes and softer consumer sentiment have been headwinds for our business, we successfully leveraged our productivity playbook to maintain an adjusted EBITDA margin of 16.4%. Our results demonstrate the resilience of our model as we remain focused on driving outsized growth in high-value categories, accelerating innovation to advance our differentiation, delivering productivity to protect base margins, and allocating capital effectively. Turning to the fourth quarter segment results, Materials Group reported sales increased 5%.
Speaker #3: Hello, everyone. We delivered solid full year 2025 results with adjusted EPS of $9.53 and $707 million of adjusted free cash flow. A performance that once again underscores the durability of our franchise and our ability to activate multiple levers across a range of macro scenarios.
Speaker #3: While ongoing trade policy changes and softer consumer sentiment have been headwinds for our business, we successfully leveraged our productivity playbook to maintain an adjusted EBITDA margin of 16.4%.
Speaker #3: Our results demonstrate the resilience of our model, as we remain focused on driving outsized growth in high-value categories, accelerating innovation to advance our differentiation, delivering productivity to protect base margins, and allocating capital effectively.
Speaker #3: Turning to the fourth quarter segment results, in materials group, reported sales increased 5%, while sales were down slightly and on organic basis; we saw low single-digit volume and mixed growth that was more than offset by deflation-related price reductions.
Deon Stander: While sales were down slightly on an organic basis, we saw low single-digit volume and mix growth that was more than offset by deflation-related price reductions. We are continuing to advance our strategic shift towards high-value categories, which now represent 38% of the segment's portfolio, a figure we expect to expand with a full year of tailored adhesives. Within this segment, Intelligent Labels delivered high single-digit growth, underscoring its role as an important growth engine, while Performance Materials grew mid-single digits and Graphics and Reflectives grew low single digits. High-value categories helped balance our base categories, which were down low single digits in the quarter, lower than expected on softer customer volumes. From a margin perspective, Adjusted EBITDA margin was 16.6%, down 40 basis points compared to the prior year.
Deon Stander: While sales were down slightly on an organic basis, we saw low single-digit volume and mix growth that was more than offset by deflation-related price reductions. We are continuing to advance our strategic shift towards high-value categories, which now represent 38% of the segment's portfolio, a figure we expect to expand with a full year of tailored adhesives. Within this segment, Intelligent Labels delivered high single-digit growth, underscoring its role as an important growth engine, while Performance Materials grew mid-single digits and Graphics and Reflectives grew low single digits. High-value categories helped balance our base categories, which were down low single digits in the quarter, lower than expected on softer customer volumes. From a margin perspective, Adjusted EBITDA margin was 16.6%, down 40 basis points compared to the prior year.
Speaker #3: We are continuing to advance our strategic shift towards high-value categories, which now represent 38% of the segment's portfolio—a figure we expect to expand with a full year of tailored adhesives.
Speaker #3: Within this segment, intelligent labels delivered high single-digit growth, underscoring its role as an important growth engine, while performance materials grew mid-single digits and graphics and reflectives grew low single digits.
Speaker #3: High-value categories helped balance our base categories, which were down low single digits in the quarter—lower than expected on softer customer volumes. From a margin perspective, adjusted EBITDA margin was 16.6%, down 40 basis points compared to the prior year.
Speaker #3: This reflects the impact of higher employee-related costs and some one-time benefits in the prior year fourth quarter, which our team worked diligently to partially offset through the benefits of our ongoing productivity actions.
Deon Stander: This reflects the impact of higher employee-related costs and some one-time benefits in the prior year fourth quarter, which our team worked diligently to partially offset through the benefits of our ongoing productivity actions. In Solutions Group, sales increased roughly 1.5%. This segment continues to lead our portfolio shift, with high-value categories now representing 60% of the Solutions Group portfolio. This proved critical this quarter, as our high-value categories provided a necessary offset to our base solutions, which continue to be impacted by tariff-related uncertainty. Specifically, our base apparel business was below our expectations, down roughly 7% as customers balanced imagery positions with the impact of post-tariff pricing decisions. Within our Solutions Group high-value platforms, Vestcom grew more than 10%, Embelex delivered high single-digit growth, and Intelligent Labels, tempered by the consumption trends in apparel and general retail IL, grew low single digits.
Deon Stander: This reflects the impact of higher employee-related costs and some one-time benefits in the prior year fourth quarter, which our team worked diligently to partially offset through the benefits of our ongoing productivity actions. In Solutions Group, sales increased roughly 1.5%. This segment continues to lead our portfolio shift, with high-value categories now representing 60% of the Solutions Group portfolio. This proved critical this quarter, as our high-value categories provided a necessary offset to our base solutions, which continue to be impacted by tariff-related uncertainty. Specifically, our base apparel business was below our expectations, down roughly 7% as customers balanced imagery positions with the impact of post-tariff pricing decisions. Within our Solutions Group high-value platforms, Vestcom grew more than 10%, Embelex delivered high single-digit growth, and Intelligent Labels, tempered by the consumption trends in apparel and general retail IL, grew low single digits.
Speaker #3: In solutions group, sales increased roughly one and a half percent. This segment continues to lead our portfolio shift with high-value categories now representing 60% of the solutions group portfolio.
Speaker #3: This proved critical this quarter as our high-value categories provided the necessary offset to our base solutions which continue to be impacted by tariff-related uncertainty.
Speaker #3: Specifically, our base apparel business was below our expectations, down roughly 7% as customers balanced imagery positions with the impact of post-tariff pricing decisions. Within our solutions group high-value platforms, Vestcom grew more than 10%, embellished delivered high single-digit growth, and intelligent labels tempered by the consumption trends in apparel and general retail IL grew low single digits.
Speaker #3: From a profitability perspective, our discipline, focused on our productivity playbook and a favorable high-value mix, allowed us to deliver an adjusted EBITDA margin of 17.8%, which was up nearly a point sequentially and comparable to the prior year.
Deon Stander: From a profitability perspective, our disciplines focused on our productivity playbook and a favorable high-value mix, allowed us to deliver an Adjusted EBITDA margin of 17.8%, which is up nearly a point sequentially and comparable to prior year, successfully offsetting high employee-related costs and our continued investments in future growth. Turning to our enterprise-wide Intelligent Labels platform, sales grew mid-single digits compared to prior year, in line with our expectations for a sequential improvement in the rate of growth. This was driven by our key growth market segments and a partial recovery in apparel, which grew low single digits this quarter. While apparel and general retail sales have been impacted by tariff policy changes resulting in flat full-year sales, our food, logistics, and other categories delivered outsized performance, with high teens growth in Q4 and approximately 10% growth for the full year 2025.
Deon Stander: From a profitability perspective, our disciplines focused on our productivity playbook and a favorable high-value mix, allowed us to deliver an Adjusted EBITDA margin of 17.8%, which is up nearly a point sequentially and comparable to prior year, successfully offsetting high employee-related costs and our continued investments in future growth. Turning to our enterprise-wide Intelligent Labels platform, sales grew mid-single digits compared to prior year, in line with our expectations for a sequential improvement in the rate of growth. This was driven by our key growth market segments and a partial recovery in apparel, which grew low single digits this quarter. While apparel and general retail sales have been impacted by tariff policy changes resulting in flat full-year sales, our food, logistics, and other categories delivered outsized performance, with high teens growth in Q4 and approximately 10% growth for the full year 2025.
Speaker #3: Successfully offsetting high employee-related costs and our continued investments in future growth. Turning to our enterprise-wide intelligent label platform, sales grew mid-single digits compared to the prior year, in line with our expectations for a sequential improvement in the rate of growth.
Speaker #3: This was driven by our key growth market segments and a partial recovery in apparel, which grew low single digits this quarter. While apparel and general retail sales have been impacted by tariff policy changes resulting in flat full-year sales, our food logistics and other categories delivered outsized performance with high-teens growth in Q4 and approximately 10% growth for the full year 2025.
Speaker #3: Looking ahead to 2026, we continue to anticipate growth in this platform above the pace we achieved in 2025. We expect the pace of growth to be stronger in the second half than the first half, as we lap a stronger first quarter 2025, which was largely unaffected by tariffs, and as new programs roll out.
Deon Stander: Looking ahead to 2026, we continue to anticipate growth in this platform above the pace we achieved in 2025. We expect the pace of growth to be stronger in the second half than the first half, as we lap a stronger Q1 2025, which was largely unaffected by tariffs and as new programs roll out. In apparel and general retail, we expect to return to growth as we continue to navigate the impacts of tariff policy uncertainty. In food, adoption is set to accelerate through our major fresh grocery rollout with Walmart, with revenues ramping in the back half of 2026. Finally, in logistics, we are focused on expanding pilots with new customers, following a year of outsized growth with our largest customer.
Deon Stander: Looking ahead to 2026, we continue to anticipate growth in this platform above the pace we achieved in 2025. We expect the pace of growth to be stronger in the second half than the first half, as we lap a stronger Q1 2025, which was largely unaffected by tariffs and as new programs roll out. In apparel and general retail, we expect to return to growth as we continue to navigate the impacts of tariff policy uncertainty. In food, adoption is set to accelerate through our major fresh grocery rollout with Walmart, with revenues ramping in the back half of 2026. Finally, in logistics, we are focused on expanding pilots with new customers, following a year of outsized growth with our largest customer.
Speaker #3: In apparel and general retail, we expect to return to growth as we continue to navigate the impacts of tariff policy uncertainty. In food, adoption is set to accelerate through our major fresh grocery rollout with Walmart, with revenues ramping in the back half of 2026.
Speaker #3: Finally, in logistics, we are focused on expanding pilots with new customers, following a year of outsized growth with our largest customer. Pivoting back to the enterprise level, while I am pleased with our ability to protect margins and earnings in this environment, I am not satisfied with our organic revenue growth.
Deon Stander: Pivoting back to the enterprise level, while I am pleased with our ability to protect margins and earnings in this environment, I am not satisfied with our organic revenue growth. While much of this is due to cyclical challenges, we are taking decisive action to inflect this growth trajectory. As you can see on slide 10, our high-value categories, which have secular tailwinds, remain a key enabler of enterprise growth and portfolio strength, growing at a mid-single digit CAGR over the past 6 years and expanding to roughly 45% of our sales in 2025, a 12-point increase since 2019. Expanding these solutions to new customers and end markets will add to our growth trajectory. Accelerating innovation outcomes in both high-value categories and the base categories is also key to changing our growth trajectory. This allows us to expand our opportunity with existing customers and to grow into new markets.
Deon Stander: Pivoting back to the enterprise level, while I am pleased with our ability to protect margins and earnings in this environment, I am not satisfied with our organic revenue growth. While much of this is due to cyclical challenges, we are taking decisive action to inflect this growth trajectory. As you can see on slide 10, our high-value categories, which have secular tailwinds, remain a key enabler of enterprise growth and portfolio strength, growing at a mid-single digit CAGR over the past 6 years and expanding to roughly 45% of our sales in 2025, a 12-point increase since 2019. Expanding these solutions to new customers and end markets will add to our growth trajectory. Accelerating innovation outcomes in both high-value categories and the base categories is also key to changing our growth trajectory. This allows us to expand our opportunity with existing customers and to grow into new markets.
Speaker #3: While much of this is due to cyclical challenges, we are taking decisive action to inflect this growth trajectory. As you can see on slide 10, our high-value categories, which have secular tailwinds, remain a key enabler of enterprise growth and portfolio strength, growing at a mid-single-digit CAGR over the past six years and expanding to roughly 45% of our sales in 2025, a 12-point increase since 2019.
Speaker #3: Expanding these solutions to new customers and end markets will add to our growth trajectory. Accelerating innovation outcomes in both high-value categories and the base categories is also key to changing our growth trajectory.
Speaker #3: This allows us to expand our opportunity with existing customers and to grow into new markets. Within our solutions group, we're advancing this through examples such as our Intelligent Labels Fresh solutions for food traceability, the expansion of Vestcom Stalling software platform for centralized retail execution, and the growth of Embellished as Custom Studio fan zones to drive in-venue fan engagement.
Deon Stander: Within our Solutions Group, we're advancing this through examples such as our Intelligent Labels fresh solutions for food traceability, the expansion of Vestcom's storeLink software platform for centralized retail execution, and the growth of Embelex's custom studio fan zones to drive in-venue fan engagement. Similarly, in Materials Group, new innovations such as the expansion of our CleanFlake portfolio to more packaging substrates to advance circularity and the introduction of smart materials to accelerate Intelligent Label adoption throughout the channel. Additionally, to further enhance our differentiation, we're also expanding our digital capabilities, use of automation, and leveraging AI to enable additional operational productivity and fixed-cost innovation, strengthen our service and quality, shorten our innovation cycles, and provide more data-driven solutions that our customers require to address their fundamental challenges.
Deon Stander: Within our Solutions Group, we're advancing this through examples such as our Intelligent Labels fresh solutions for food traceability, the expansion of Vestcom's storeLink software platform for centralized retail execution, and the growth of Embelex's custom studio fan zones to drive in-venue fan engagement. Similarly, in Materials Group, new innovations such as the expansion of our CleanFlake portfolio to more packaging substrates to advance circularity and the introduction of smart materials to accelerate Intelligent Label adoption throughout the channel. Additionally, to further enhance our differentiation, we're also expanding our digital capabilities, use of automation, and leveraging AI to enable additional operational productivity and fixed-cost innovation, strengthen our service and quality, shorten our innovation cycles, and provide more data-driven solutions that our customers require to address their fundamental challenges.
Speaker #3: Similarly, in materials group, new innovations such as the expansion of our clean flake portfolio to more packaging substrates to advance circularity and the introduction of smart materials to accelerate intelligent labeled adoption throughout the channel.
Speaker #3: Additionally, to further enhance our differentiation, we're also expanding our digital capabilities, use of automation, and leveraging AI. To enable additional operational productivity and fixed cost innovation, strengthen our service and quality, shorten our innovation cycles, and provide more data-driven solutions that our customers require to address their fundamental challenges.
Speaker #3: Stepping back, as you can see on slide nine, executing on all our key strategies with proven business resilience enables us to deliver GDP plus growth and top quartile returns across cycles.
Deon Stander: Stepping back, as you can see on slide 9, executing on all our key strategies with proven business resilience enables us to deliver GDP-plus growth and top quartile returns across cycles. In addition to investing in innovation to drive growth in our high-value categories and base businesses and positioning ourselves to lead at the intersection of the physical and digital, we will continue to relentlessly focus on productivity to strengthen our market-leading positions in both our businesses. We will also continue to be disciplined in capital allocation to deliver returns and improve our portfolio. Finally, I'm pleased to report that we achieved our 2025 sustainability objectives, which we laid out in 2015. These include reducing our energy intensity and enabling more sustainable products and solutions for our customers. Similarly, we're making good progress towards our 2030 sustainability objectives we set in 2020. Now, moving to the outlook for 2026.
Deon Stander: Stepping back, as you can see on slide 9, executing on all our key strategies with proven business resilience enables us to deliver GDP-plus growth and top quartile returns across cycles. In addition to investing in innovation to drive growth in our high-value categories and base businesses and positioning ourselves to lead at the intersection of the physical and digital, we will continue to relentlessly focus on productivity to strengthen our market-leading positions in both our businesses. We will also continue to be disciplined in capital allocation to deliver returns and improve our portfolio. Finally, I'm pleased to report that we achieved our 2025 sustainability objectives, which we laid out in 2015. These include reducing our energy intensity and enabling more sustainable products and solutions for our customers. Similarly, we're making good progress towards our 2030 sustainability objectives we set in 2020. Now, moving to the outlook for 2026.
Speaker #3: In addition to investing in innovation to drive growth in our high-value categories and base businesses, and positioning ourselves to lead at the intersection of the physical and digital, we will continue to relentlessly focus on productivity to strengthen our market-leading positions in both our businesses.
Speaker #3: We will also continue to be disciplined in capital allocation to deliver returns and improve our portfolio finally, I'm pleased to report that we achieved our 2025 sustainability objectives, which we laid out in 2015.
Speaker #3: These include reducing our energy intensity and enabling more sustainable products and solutions for our customers. Similarly, we're making good progress toward our 2030 sustainability objectives we set in 2020.
Speaker #3: Now, moving to the outlook for 2026, in line with our recent practice of providing a quarterly outlook, we will be continuing this approach for the foreseeable future.
Deon Stander: In line with our recent practice of providing a quarterly outlook, we will be continuing this approach for the foreseeable future. As such, for Q1 2026, we expect adjusted earnings per share to grow approximately 6% at the midpoint on organic sales growth of 0% to 2%. Given key economic indicators remain largely consistent with 2025 levels, we are not planning for any macroeconomic tailwinds in the near term. Our performance will instead be driven by the levers within our control, scaling our differentiated solutions in high-value categories, returning our base business into profitable growth, maintaining a relentless focus on productivity, and effectively deploying capital to drive earnings. In summary, we have exited a dynamic and challenging year, not just more resilient but structurally stronger to deliver longer-term value creation. Advancing our strategic priorities underpins our confidence in returning to stronger growth and delivering top quartile returns.
Deon Stander: In line with our recent practice of providing a quarterly outlook, we will be continuing this approach for the foreseeable future. As such, for Q1 2026, we expect adjusted earnings per share to grow approximately 6% at the midpoint on organic sales growth of 0% to 2%. Given key economic indicators remain largely consistent with 2025 levels, we are not planning for any macroeconomic tailwinds in the near term. Our performance will instead be driven by the levers within our control, scaling our differentiated solutions in high-value categories, returning our base business into profitable growth, maintaining a relentless focus on productivity, and effectively deploying capital to drive earnings. In summary, we have exited a dynamic and challenging year, not just more resilient but structurally stronger to deliver longer-term value creation. Advancing our strategic priorities underpins our confidence in returning to stronger growth and delivering top quartile returns.
Speaker #3: As such, for the first quarter of 2026, we expect adjusted earnings per share to grow approximately 6% at the midpoint on organic sales growth of 0% to 2%.
Speaker #3: Given key economic indicators remain largely consistent with 2025 levels, we are not planning for any macroeconomic tailwinds in the near term. Our performance will instead be driven by the levers within our control: scaling our differentiated solutions in high-value categories, returning our base businesses to profitable growth, maintaining a relentless focus on productivity, and effectively deploying capital to drive earnings.
Speaker #3: In summary, we have exited a dynamic and challenging year not just more resilient, but structurally stronger to deliver longer-term value creation. Advancing our strategic priorities underpins our confidence in returning to stronger growth and delivering top quartile returns.
Speaker #3: We are entering 2026 with the right playbook, the right team, and a path to return to growth in line with our long-term targets. I want to extend my sincere gratitude to our global team for their dedication to excellence and their unwavering focus on executing our strategies.
Deon Stander: We are entering 2026 with the right playbook, the right team, and a path to return to growth in line with our long-term targets. I want to extend my sincere gratitude to our global team for their dedication to excellence and their unwavering focus on executing our strategies. With that, over to you, Greg.
Deon Stander: We are entering 2026 with the right playbook, the right team, and a path to return to growth in line with our long-term targets. I want to extend my sincere gratitude to our global team for their dedication to excellence and their unwavering focus on executing our strategies. With that, over to you, Greg.
Speaker #3: And with that, over to you.
Speaker #3: Greg. Thanks, Dion, and hello,
Greg Lovins: Thanks, Deon, and hello everybody. In Q4, we delivered solid adjusted earnings per share of $2.45, up 3% compared to prior year. Earnings growth was driven by higher volume and productivity, partially offset by higher employee-related costs and targeted growth investments. From an overall sales perspective, our business continued to be impacted by a softer consumer environment and customer uncertainty due to the impact of trade policy changes. Q4 reported sales were up 3.9%, with organic sales comparable to prior year as positive volume was offset by deflation-related price reductions. As expected, we benefited from an estimated 0.5% impact from our shift to the Gregorian calendar at the end of the year and one point of growth from the Taylor Adhesives acquisition. Adjusted EBITDA margin remained resilient at 16.2% in the quarter, down slightly compared to prior year.
Gregory S. Lovins: Thanks, Deon, and hello everybody. In Q4, we delivered solid adjusted earnings per share of $2.45, up 3% compared to prior year. Earnings growth was driven by higher volume and productivity, partially offset by higher employee-related costs and targeted growth investments. From an overall sales perspective, our business continued to be impacted by a softer consumer environment and customer uncertainty due to the impact of trade policy changes. Q4 reported sales were up 3.9%, with organic sales comparable to prior year as positive volume was offset by deflation-related price reductions. As expected, we benefited from an estimated 0.5% impact from our shift to the Gregorian calendar at the end of the year and one point of growth from the Taylor Adhesives acquisition. Adjusted EBITDA margin remained resilient at 16.2% in the quarter, down slightly compared to prior year.
Speaker #2: Hello, everybody. In the fourth quarter, we delivered solid adjusted earnings per share of $2.45, up 3% compared to the prior year. Earnings growth was driven by higher volume and productivity, partially offset by higher employee-related costs and targeted growth investments.
Speaker #2: From an overall sales perspective, our business continued to be impacted by a softer consumer environment and customer uncertainty due to the impact of trade policy changes.
Speaker #2: Fourth quarter reported sales were up 3.9%, with organic sales comparable to prior year, as positive volume was offset by deflation-related price reductions. As expected, we benefited from an estimated 0.5 impact from our shift to the Gregorian calendar at the end of the year.
Speaker #2: In one point of growth from the Tailor Adhesives acquisition. Adjusted EBITDA margin remained resilient at 16.2% in the quarter, down slightly compared to prior year.
Speaker #2: And we again generated strong adjusted free cash flow of $303 million in the quarter, bringing our full year 2025 free cash flow to $707 million, with a free cash flow conversion rate of greater than 100%.
Greg Lovins: And we again generated strong adjusted free cash flow of $303 million in the quarter, bringing our full year 2025 free cash flow to $707 million, with a free cash flow conversion rate of greater than 100%. And our balance sheet remained strong, with our quarter-end net debt to adjusted EBITDA ratio at 2.4. We continue to execute our disciplined capital allocation strategy. For the full year, we returned approximately $860 million to shareholders, including $572 million in buybacks and $288 million in dividends, reinforcing our commitment to delivering shareholder value while maintaining a strong balance sheet. Now, turning to segment results for the quarter, Materials Group organic sales were down approximately 1%, as low single-digit volume mix growth was more than offset by low single-digit deflation-related price reductions. Organically, high-value categories grew low single digits, while our base categories were down low single digits.
Gregory S. Lovins: And we again generated strong adjusted free cash flow of $303 million in the quarter, bringing our full year 2025 free cash flow to $707 million, with a free cash flow conversion rate of greater than 100%. And our balance sheet remained strong, with our quarter-end net debt to adjusted EBITDA ratio at 2.4. We continue to execute our disciplined capital allocation strategy. For the full year, we returned approximately $860 million to shareholders, including $572 million in buybacks and $288 million in dividends, reinforcing our commitment to delivering shareholder value while maintaining a strong balance sheet. Now, turning to segment results for the quarter, Materials Group organic sales were down approximately 1%, as low single-digit volume mix growth was more than offset by low single-digit deflation-related price reductions. Organically, high-value categories grew low single digits, while our base categories were down low single digits.
Speaker #2: And our balance sheet remained strong, with our quarter-end net debt to adjusted EBITDA ratio at 2.4. We continue to execute our disciplined capital allocation strategy.
Speaker #2: For the full year, we returned approximately $860 million to shareholders, including $572 million in buybacks and $288 million in dividends. Reinforcing our commitment to delivering shareholder value while maintaining a strong balance sheet.
Speaker #2: Now, turning to segment results for the quarter, materials group organic sales were down approximately 1%, as low single-digit volume mix growth was more than offset by low single-digit deflation-related price reductions.
Speaker #2: Organically, high-value categories grew low single digits, while our base categories were down low single digits. Turning to regional label materials organic volume mix trends versus prior year, in developed markets, volume mix was down low single digits in North America, as consumer product demand continued to impact volumes, while Europe delivered mid-single-digit growth.
Greg Lovins: Turning to regional label materials organic volume mix trends versus prior year. In developed markets, volume mix was down low single digits in North America as consumer product demand continued to impact volumes, while Europe delivered mid-single digit growth. In emerging markets, Asia-Pacific and Latin America were both up low single digits. Our high-value categories in Materials Group delivered low single-digit organic growth. This growth was driven by Intelligent Labels, which delivered a high single-digit increase. Performance Materials, which includes our performance tapes and adhesive businesses, was up mid-single digits, while Graphics and Reflectives were up low single digits, and specialty endurable labels were comparable to prior year. Materials Group continued to deliver resilient margins with an Adjusted EBITDA margin of 16.6% in the quarter.
Gregory S. Lovins: Turning to regional label materials organic volume mix trends versus prior year. In developed markets, volume mix was down low single digits in North America as consumer product demand continued to impact volumes, while Europe delivered mid-single digit growth. In emerging markets, Asia-Pacific and Latin America were both up low single digits. Our high-value categories in Materials Group delivered low single-digit organic growth. This growth was driven by Intelligent Labels, which delivered a high single-digit increase. Performance Materials, which includes our performance tapes and adhesive businesses, was up mid-single digits, while Graphics and Reflectives were up low single digits, and specialty endurable labels were comparable to prior year. Materials Group continued to deliver resilient margins with an Adjusted EBITDA margin of 16.6% in the quarter.
Speaker #2: In emerging markets, Asia Pacific and Latin America were both up low single digits. Our high-value categories in materials group delivered low single-digit organic growth.
Speaker #2: This growth was driven by intelligent labels, which delivered a high single-digit increase. Performance Materials, which includes our Performance Tapes and Adhesive businesses, was up mid-single digits, while Graphics and Reflectives were up low single digits, and especially in durable labels were comparable to the prior year.
Speaker #2: Materials Group continued to deliver resilient margins, with an adjusted EBITDA margin of 16.6% in the quarter. While this was down slightly compared to the prior year, it reflects our ability to largely defend profitability through productivity efforts, which nearly offset the headwinds from higher employee-related costs and a lower volume growth environment.
Greg Lovins: While this was down slightly compared to prior year, it reflects our ability to largely defend profitability through productivity efforts, which nearly offset the headwinds from higher employee-related costs in a lower volume growth environment. Regarding raw material costs, including the cost of tariffs, we continue to experience modest sequential raw material deflation in Q4, capping a year where total raw material costs declined low single digits. Our teams remained agile in navigating dynamic markets, mitigating tariff costs through strategic sourcing adjustments and the implementation of select pricing surcharges. Overall, including tariffs, our outlook is for relatively stable sequential material costs as we enter 2026. Shifting Solutions Group, sales were up 1.3% organically. High-value categories performed well, up high single digits, with base solutions down mid-single digits, driven by softer base apparel sales.
Gregory S. Lovins: While this was down slightly compared to prior year, it reflects our ability to largely defend profitability through productivity efforts, which nearly offset the headwinds from higher employee-related costs in a lower volume growth environment. Regarding raw material costs, including the cost of tariffs, we continue to experience modest sequential raw material deflation in Q4, capping a year where total raw material costs declined low single digits. Our teams remained agile in navigating dynamic markets, mitigating tariff costs through strategic sourcing adjustments and the implementation of select pricing surcharges. Overall, including tariffs, our outlook is for relatively stable sequential material costs as we enter 2026. Shifting Solutions Group, sales were up 1.3% organically. High-value categories performed well, up high single digits, with base solutions down mid-single digits, driven by softer base apparel sales.
Speaker #2: Regarding raw material cost, including the cost of tariffs, we continued to experience modest sequential raw material deflation in the fourth quarter. Capping a year where total raw material cost declined low single digits.
Speaker #2: Our teams remained agile in navigating dynamic markets, mitigating tariff costs through strategic sourcing adjustments, and the implementation of select pricing surcharges. Overall, including tariffs, our outlook is for relatively stable sequential material costs as we enter 2026.
Speaker #2: Shifting Solutions Group, sales were up 1.3% organically. High-value categories performed well, up high single digits, with base solutions down mid-single digits, driven by softer base apparel sales.
Speaker #2: Within high-value categories, VESCOM was up more than 10%, driven by the continued benefit from new program rollouts. Embellics was up high single digits, driven partially by World Cup sales, and intelligent label sales grew low single digits on lower apparel and general retail volumes.
Greg Lovins: Within high-value categories, Vestcom was up more than 10%, driven by the continued benefit from new program rollouts. Embelex was up high single digits, driven partially by World Cup sales, and Intelligent Labels sales grew low single digits on lower apparel and general retail volumes. Now, turning to enterprise-wide Intelligent Labels, sales expanded mid-single digits compared to prior year. Growth was once again driven by food, logistics, and industrial categories, which were up high teens for the quarter and now represent approximately 30% of our total IL portfolio. Offsetting this strong momentum was the performance in apparel and general retail, which combined were down low single digits for the quarter. These markets represent 70% of our Intelligent Labels sales and continue to be impacted by tariff-related pressures.
Gregory S. Lovins: Within high-value categories, Vestcom was up more than 10%, driven by the continued benefit from new program rollouts. Embelex was up high single digits, driven partially by World Cup sales, and Intelligent Labels sales grew low single digits on lower apparel and general retail volumes. Now, turning to enterprise-wide Intelligent Labels, sales expanded mid-single digits compared to prior year. Growth was once again driven by food, logistics, and industrial categories, which were up high teens for the quarter and now represent approximately 30% of our total IL portfolio. Offsetting this strong momentum was the performance in apparel and general retail, which combined were down low single digits for the quarter. These markets represent 70% of our Intelligent Labels sales and continue to be impacted by tariff-related pressures.
Speaker #2: Now, turning to enterprise-wide Intelligent Labels, sales expanded mid-single digits compared to the prior year. Growth was once again driven by food, logistics, and industrial categories, which were up high teens for the quarter, and now represent approximately 30% of our total IL portfolio.
Speaker #2: Offsetting this strong momentum was the performance in apparel and general retail, which combined were down low single digits for the quarter. And these markets represent 70% of our intelligent label sales.
Speaker #2: And continue to be impacted by tariff-related pressures. Solutions Group adjusted EBITDA margin was 17.8%, which was comparable to the prior year, as benefits from our continued productivity efforts and higher volume were offset by higher employee-related costs and ongoing growth investments.
Greg Lovins: Solutions Group adjusted EBITDA margin was 17.8%, which was comparable to prior year, as benefits from our continued productivity efforts and higher volume were offset by higher employee-related costs and ongoing growth investments. Now, stepping back to look at our long-term financial performance, we remain focused on delivering strong results across cycles. Reflecting on our 2020 to 2025 targets, we delivered solid results despite multiple cyclical challenges by leveraging the strength of our portfolio. We successfully exceeded our top-line goals and performed well on our profitability targets, with EBITDA margin ahead of our long-term objective. However, we did fall short of our adjusted EPS target, which came in at 7% ex-currency, trailing our 10% target, partially due to the impact of acquisition and tangibles amortization.
Gregory S. Lovins: Solutions Group adjusted EBITDA margin was 17.8%, which was comparable to prior year, as benefits from our continued productivity efforts and higher volume were offset by higher employee-related costs and ongoing growth investments. Now, stepping back to look at our long-term financial performance, we remain focused on delivering strong results across cycles. Reflecting on our 2020 to 2025 targets, we delivered solid results despite multiple cyclical challenges by leveraging the strength of our portfolio. We successfully exceeded our top-line goals and performed well on our profitability targets, with EBITDA margin ahead of our long-term objective. However, we did fall short of our adjusted EPS target, which came in at 7% ex-currency, trailing our 10% target, partially due to the impact of acquisition and tangibles amortization.
Speaker #2: Now, stepping back to look at our long-term financial performance, we remain focused on delivering strong results across cycles. Reflecting on our 2020 to 2025 targets, we delivered solid results despite multiple cyclical challenges by leveraging the strength of our portfolio.
Speaker #2: We successfully exceeded our top-line goals and performed well on our profitability targets, with EBITDA margin ahead of our long-term objective. However, we did fall short of our adjusted EPS target, which came in at 7% ex-currency, trailing our 10% target, partially due to the impact of acquisition and tangibles amortization.
Speaker #2: Additionally, ROTC, while in the top decile of our peers, finished at 15%, largely driven by the impacts of our acquisitions, including tailored adhesives, which closed in the fourth quarter of 2025.
Greg Lovins: Additionally, ROTC, while in the top decile of our peers, finished at 15%, largely driven by the impacts of our acquisitions, including Taylor Adhesives, which closed in Q4 2025. Turning to our 2023 to 2028 targets, we are currently in line or ahead on most of our targets. As Deon mentioned, our focus is to shift our organic sales growth trajectory to achieve our targets for this cycle. Now, turning to our outlook. For Q1 2026, we anticipate reported sales growth of 5% to 7%. Our guidance does not presume an improvement in external market conditions. This sales growth includes organic growth of 0% to 2%, approximately 4% from currency translation, and approximately 1% from the Taylor Adhesives acquisition.
Gregory S. Lovins: Additionally, ROTC, while in the top decile of our peers, finished at 15%, largely driven by the impacts of our acquisitions, including Taylor Adhesives, which closed in Q4 2025. Turning to our 2023 to 2028 targets, we are currently in line or ahead on most of our targets. As Deon mentioned, our focus is to shift our organic sales growth trajectory to achieve our targets for this cycle. Now, turning to our outlook. For Q1 2026, we anticipate reported sales growth of 5% to 7%. Our guidance does not presume an improvement in external market conditions. This sales growth includes organic growth of 0% to 2%, approximately 4% from currency translation, and approximately 1% from the Taylor Adhesives acquisition.
Speaker #2: Turning to our '23 to 2028 targets, we are currently in line or ahead on most of our targets. And as Deon mentioned, our focus is to shift our organic sales growth trajectory to achieve our targets for this cycle.
Speaker #2: Now, turning to our outlook, for the first quarter of 2026, we anticipate reported sales growth of 5 to 7%. Our guidance does not presume an improvement in external market conditions.
Speaker #2: This sales growth includes organic growth of 0% to 2%, approximately 4% from currency translation, and approximately 1% from the tailored adhesives acquisition. We expect adjusted earnings per share to be in the range of $2.40 to $2.46, representing approximately 6% growth year over year at the midpoint.
Greg Lovins: We expect adjusted earnings per share to be in the range of $2.40 to $2.46, representing approximately 6% growth year-over-year at the midpoint. This earnings growth is driven by benefits of organic volume mix growth and productivity actions, which more than offset headwinds from wage inflation and growth investments, and the normalization of 2025 temporary savings, including incentive compensation and a net benefit from combined currency, share count, interest, and tax. We've also outlined key contributing factors to our full year 2026 on slide 14 of our supplemental materials. We expect an approximate $0.25 EPS benefit from the combination of favorable currency and a lower share count, partially offset by higher adjusted tax rate and interest expense. We expect restructuring savings of approximately $50 million as we continue to execute our productivity playbook.
Gregory S. Lovins: We expect adjusted earnings per share to be in the range of $2.40 to $2.46, representing approximately 6% growth year-over-year at the midpoint. This earnings growth is driven by benefits of organic volume mix growth and productivity actions, which more than offset headwinds from wage inflation and growth investments, and the normalization of 2025 temporary savings, including incentive compensation and a net benefit from combined currency, share count, interest, and tax. We've also outlined key contributing factors to our full year 2026 on slide 14 of our supplemental materials. We expect an approximate $0.25 EPS benefit from the combination of favorable currency and a lower share count, partially offset by higher adjusted tax rate and interest expense. We expect restructuring savings of approximately $50 million as we continue to execute our productivity playbook.
Speaker #2: This earnings growth is driven by benefits of organic volume/mix growth and productivity actions, which more than offset headwinds from wage inflation and growth investments.
Speaker #2: And the normalization of 2025 temporary savings, including incentive compensation, and a net benefit from combined currency, share count, interest, and tax. We've also outlined key contributing factors to our full-year 2026 on slide 14 of our supplemental materials.
Speaker #2: We expect an approximate 25-cent EPS benefit from the combination of favorable currency and a lower share count, partially offset by higher adjusted tax rate and interest expense.
Speaker #2: We expect restructuring savings of approximately $50 million as we continue to execute our productivity playbook, and we expect the normalization of a majority of the 2025 temporary savings, which was largely related to lower incentive compensation costs.
Greg Lovins: We expect a normalization of a majority of the 2025 temporary savings, which was largely related to lower incentive compensation costs. We remain committed to strong free cash flow, again targeting roughly 100% conversion, with fixed and IT capital spending of approximately $260 million. We anticipate a sequential increase in earnings throughout the year in line with our recent historical seasonal patterns. In summary, we delivered a solid fourth quarter, achieving Adjusted EPS of $2.45, which was up 3% compared to prior year. This capped off a year where we leveraged our proven playbook to protect bottom-line results. We generated over $700 million in full-year adjusted free cash flow and returned approximately $860 million to shareholders while maintaining a strong balance sheet.
Gregory S. Lovins: We expect a normalization of a majority of the 2025 temporary savings, which was largely related to lower incentive compensation costs. We remain committed to strong free cash flow, again targeting roughly 100% conversion, with fixed and IT capital spending of approximately $260 million. We anticipate a sequential increase in earnings throughout the year in line with our recent historical seasonal patterns. In summary, we delivered a solid fourth quarter, achieving Adjusted EPS of $2.45, which was up 3% compared to prior year. This capped off a year where we leveraged our proven playbook to protect bottom-line results. We generated over $700 million in full-year adjusted free cash flow and returned approximately $860 million to shareholders while maintaining a strong balance sheet.
Speaker #2: We remain committed to strong free cash flow, again targeting roughly 100% conversion, with fixed and IT capital spending of approximately $260 million. And we anticipate a sequential increase in earnings throughout the year, in line with our recent historical seasonal patterns.
Speaker #2: In summary, we delivered a solid fourth quarter, achieving adjusted EPS of $2.45, which was up 3% compared to the prior year. And this capped off a year where we leveraged our proven playbook to protect bottom-line results.
Speaker #2: We generated over $700 million in full-year adjusted free cash flow and returned approximately $860 million to shareholders while maintaining a strong balance sheet. For the first quarter, we expect at the midpoint an improvement in organic sales and earnings, as we continue to deliver actions to increase the pace of our earnings growth.
Greg Lovins: For the first quarter, we expect at the midpoint an improvement on organic sales and earnings as we continue to deliver actions to increase the pace of our earnings growth. We remain well-prepared for a variety of macro scenarios. We're positioned to execute our profitable growth and disciplined capital allocation strategies to deliver superior long-term value for our stakeholders. Now we'll open up the call for your questions.
Gregory S. Lovins: For the first quarter, we expect at the midpoint an improvement on organic sales and earnings as we continue to deliver actions to increase the pace of our earnings growth. We remain well-prepared for a variety of macro scenarios. We're positioned to execute our profitable growth and disciplined capital allocation strategies to deliver superior long-term value for our stakeholders. Now we'll open up the call for your questions.
Speaker #2: And we remain well prepared for a variety of macro scenarios. And we're positioned to execute our profitable growth and disciplined capital allocation strategies to deliver superior long-term value for our stakeholders.
Speaker #2: And now we'll open up the call for your questions. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please raise your hand now using star 1 on your telephone keypad.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. If you would like to ask a question, please raise your hand now using star 1 on your telephone keypad. If your question has been answered and you would like to withdraw your registration, please press the pound key. 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. Please stand by as we compile the Q&A roster. Our first question comes from George Staffos, Bank of America Securities, Incorporated. Please proceed with your question.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. If you would like to ask a question, please raise your hand now using star 1 on your telephone keypad. If your question has been answered and you would like to withdraw your registration, please press the pound key. 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. Please stand by as we compile the Q&A roster. Our first question comes from George Staffos, Bank of America Securities, Incorporated. Please proceed with your question.
Speaker #2: If your question has been answered and you would like to withdraw your registration, please press the pound key. 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.
Speaker #2: Please stand by as we compile the Q&A roster. Our first question comes from George Staffos, Bank of America Securities Incorporated. Please proceed with your question.
Speaker #2: question. Good morning.
George Staffos: Good morning. Thanks for the details, Deon, Greg, and William Gilchrist. Good to talk with you. My question will be on materials. You called out a few things that made comparisons difficult this Q4 versus last Q4, so we appreciate that. But I was wondering if you could parse a bit further the puts and takes, the pluses and minuses, behind the 40 basis point drop in margin. It was a little bit worse than we were expecting. In that regard, the higher employee-related costs, we can guess at what that is, but if you could provide a bit more color. And last thing, was there any impact from higher RAWs in that number? I know you said there was deflation, particularly, though, around paper, paper pricing, and the like. Thank you.
George Staphos: Good morning. Thanks for the details, Deon, Greg, and William Gilchrist. Good to talk with you. My question will be on materials. You called out a few things that made comparisons difficult this Q4 versus last Q4, so we appreciate that. But I was wondering if you could parse a bit further the puts and takes, the pluses and minuses, behind the 40 basis point drop in margin. It was a little bit worse than we were expecting. In that regard, the higher employee-related costs, we can guess at what that is, but if you could provide a bit more color. And last thing, was there any impact from higher RAWs in that number? I know you said there was deflation, particularly, though, around paper, paper pricing, and the like. Thank you.
Speaker #3: Thanks for the details. Deon Greg Gilley, good to talk with you. My question will be on materials you called out a few things that made comparisons difficult this fourth quarter versus last fourth quarter.
Speaker #3: So, we appreciate that. But I was wondering if you could parse a bit further the puts and takes, the pluses and minuses, behind the 40 basis point drop in margin.
Speaker #3: It was a little bit worse than we were expecting. In that regard, the higher employee-related costs were we can guess at what that is.
Speaker #3: But if you could provide a bit more color. And last thing, was there any impact from higher ROS in that number? I know you said there was deflation.
Speaker #3: Particularly, though, around paper pricing and the like. Thank
Speaker #3: Particularly, though, around paper pricing and the like. Thank you. Thanks, George.
Greg Lovins: Thanks, George. This is Greg. So I think there is, of course, a number of factors. We talked about our base volumes were a bit soft in the quarter. And when we look at every year, we have wage inflation year-over-year, and we need a bit of volume growth to offset that wage inflation. So when our base volumes are down, a lot of our productivity actions are going then to offset wage inflation and some of those headwinds. At the same time, we did have a little bit of small one-time items last year. Nothing major, but a couple of items that added up to a few cents that were a headwind year-over-year for us as we look at prior year, Q4 2024 to Q4 2025. And then in addition to that, we did have the extra calendar days this year.
Gregory S. Lovins: Thanks, George. This is Greg. So I think there is, of course, a number of factors. We talked about our base volumes were a bit soft in the quarter. And when we look at every year, we have wage inflation year-over-year, and we need a bit of volume growth to offset that wage inflation. So when our base volumes are down, a lot of our productivity actions are going then to offset wage inflation and some of those headwinds. At the same time, we did have a little bit of small one-time items last year. Nothing major, but a couple of items that added up to a few cents that were a headwind year-over-year for us as we look at prior year, Q4 2024 to Q4 2025. And then in addition to that, we did have the extra calendar days this year.
Speaker #4: This is Greg. So, I think there is, of course, a number of factors. We talked about our base volumes were a bit soft in the quarter.
Speaker #4: And when we look at every year, we have wage inflation year over year, and we need a bit of volume growth to offset that wage inflation.
Speaker #4: So when our base volumes are down, a lot of our productivity actions are then going to offset wage inflation and some of those headwinds.
Speaker #4: At the same time, we did have a little bit of small one-time items last year—nothing major—but a couple of items that added up to a few cents that were a headwind. Then, year over year for us, as we look at prior year Q4 of '24 to Q4 of '25.
Speaker #4: And then in addition to that, we did have the extra calendar days this year. And those were four extra calendar days that come with fixed costs for those days.
Greg Lovins: Those were 4 extra calendar days that come with fixed costs for those days, but pretty soft shipping days because they're the days right before New Year. So the flow-through on those is typically well below our average as well. So it's a number of impacts there. Now, when I look at our sequential margins from Q3 to Q4, I think it's largely in line with our historical seasonality. Historically, we do see a 60 basis points or so drop in Q3 to Q4 margins in materials, largely due to the holiday impacts as well as mix of our RFID labels in the fourth quarter versus the third quarter. And then in addition to that, as I said, we had the calendar shift impacts in the quarter. So overall, pretty much in line historical seasonality from a margin perspective.
Gregory S. Lovins: Those were 4 extra calendar days that come with fixed costs for those days, but pretty soft shipping days because they're the days right before New Year. So the flow-through on those is typically well below our average as well. So it's a number of impacts there. Now, when I look at our sequential margins from Q3 to Q4, I think it's largely in line with our historical seasonality. Historically, we do see a 60 basis points or so drop in Q3 to Q4 margins in materials, largely due to the holiday impacts as well as mix of our RFID labels in the fourth quarter versus the third quarter. And then in addition to that, as I said, we had the calendar shift impacts in the quarter. So overall, pretty much in line historical seasonality from a margin perspective.
Speaker #4: But pretty soft shipping days, because they're the days right before New Year. So the flow-through on those is typically well below our average as well.
Speaker #4: So it's a number of impacts there. Now, when I look at our sequential margins from Q3 to Q4, I think it's largely in line with our historical seasonality.
Speaker #4: Historically, we do see a 60 basis point or so drop in Q3 to Q4 margins in Materials, largely due to the holiday impacts, as well as the mix of our VI labels in the fourth quarter versus the third quarter.
Speaker #4: And then in addition to that, as I said, we had the calendar shift impacts in the quarter. So, overall, pretty much in line—historical seasonality from a margin perspective.
Speaker #4: And year over year, had some one-time items in prior year that impacted the year-over-year comparison.
Greg Lovins: And year-over-year, had some one-time items in prior year that impacted the year-over-year comparison.
Gregory S. Lovins: And year-over-year, had some one-time items in prior year that impacted the year-over-year comparison.
Speaker #2: Your next question comes from Gancham Punjabi. Robert W. Baird. Please proceed with your
Operator: Your next question comes from Ghansham Panjabi, Robert W. Baird. Please proceed with your question.
Operator: Your next question comes from Ghansham Panjabi, Robert W. Baird. Please proceed with your question.
Speaker #2: question. Yeah.
George Staffos: Yeah. Thanks, operator. Good morning, guys. I guess on Intelligent Labels and the low single-digit growth during 2025, how are you at this point thinking about growth for 2026? And related to that, can you share your view on growth expectations for some of the other higher-value categories, Vestcom, Embelex, etc.? And then, Deon, on your decision to only give quarterly guidance for now, where do you lack specific visibility in context of a portfolio that's relatively diverse both by business and geographically? And what would need to change for you to kind of go back to that annual guidance construct?
Ghansham Panjabi: Yeah. Thanks, operator. Good morning, guys. I guess on Intelligent Labels and the low single-digit growth during 2025, how are you at this point thinking about growth for 2026? And related to that, can you share your view on growth expectations for some of the other higher-value categories, Vestcom, Embelex, etc.? And then, Deon, on your decision to only give quarterly guidance for now, where do you lack specific visibility in context of a portfolio that's relatively diverse both by business and geographically? And what would need to change for you to kind of go back to that annual guidance construct?
Speaker #3: Thanks, Operator. Good morning, guys. I guess on intelligent labels and the low single-digit growth during 2025, how are you at this point thinking about growth for 2026, and related to that?
Speaker #3: Can you share your view on growth expectations for some of the other higher-value categories, BESCOM and BELEX, etc.? And then, Deon, on your decision to only give quarterly guidance for now, where do you lack specific visibility in context of a portfolio that's relatively diverse, both by business and geographically?
Speaker #3: And what would need to change for you to kind of go back to that annual guidance?
Speaker #3: construct? Yeah.
Deon Stander: Yeah. Gus, let me start with the first question on IL. We had low single digits in 2020, growth in 2025. We're anticipating our growth rate in 2026 to be above what we delivered in 2025. In 2025, I'd say largely, the biggest impact was really on apparel and general merchandise, really tied to the tariff activity that was happening. I still fundamentally continue to believe in the significant growth opportunity this platform has. Just a restate, and this is a 300 billion-unit-plus opportunity, $8 billion-plus opportunity. We're really at the nascent stage. What gives me that level of confidence that we're going to continue to see that growth during 2026 and beyond is the fact that we are already seeing, as you've seen, more adoption in these individual segments.
Deon Stander: Yeah. Gus, let me start with the first question on IL. We had low single digits in 2020, growth in 2025. We're anticipating our growth rate in 2026 to be above what we delivered in 2025. In 2025, I'd say largely, the biggest impact was really on apparel and general merchandise, really tied to the tariff activity that was happening. I still fundamentally continue to believe in the significant growth opportunity this platform has. Just a restate, and this is a 300 billion-unit-plus opportunity, $8 billion-plus opportunity. We're really at the nascent stage. What gives me that level of confidence that we're going to continue to see that growth during 2026 and beyond is the fact that we are already seeing, as you've seen, more adoption in these individual segments.
Speaker #4: Gus, let me start with the first question on IL. We had low single digits in '20, growth in 2025. And we're anticipating our growth rate in '26 to be above what we delivered in 2025.
Speaker #4: In 2025, I'd say largely the biggest impact was really on apparel and general merchandise, really tied to the tariff activity that was happening. And I think, fundamentally, continue to believe in the significant growth opportunity this platform has.
Speaker #4: Just to restate, this is a $300 billion unit-plus opportunity, and an $8 billion-plus opportunity. We're really at the nascent stage. What gives me that level of confidence that we're going to continue to see that growth through 2026 and beyond is the fact that we are already seeing, as you've seen, more adoption in these individual segments. More apparel customers continue to adopt the technology, as well as extend the use of the technology—for example, in loss prevention.
Deon Stander: More apparel customers continue to adopt the technology as well as extend the use of the technology, for example, in loss prevention. We now have, and we're working through the planning and the execution, as we go to the second half of the year, on the second grocery customer, which I think itself will be a significant inflection point for that segment. And I think then in logistics, we're going to continue to really lean into more pilots, expanded pilots with a number of our other customers and with our large customer where we drove outsized growth in 2025, largely on our execution as some of the other competitors struggled and we gained some share. We're anticipating that large customer has also provided lower outlook for volume guidance in this year. And we're going to factor that in. We'll see how that goes in logistics overall.
Deon Stander: More apparel customers continue to adopt the technology as well as extend the use of the technology, for example, in loss prevention. We now have, and we're working through the planning and the execution, as we go to the second half of the year, on the second grocery customer, which I think itself will be a significant inflection point for that segment. And I think then in logistics, we're going to continue to really lean into more pilots, expanded pilots with a number of our other customers and with our large customer where we drove outsized growth in 2025, largely on our execution as some of the other competitors struggled and we gained some share. We're anticipating that large customer has also provided lower outlook for volume guidance in this year. And we're going to factor that in. We'll see how that goes in logistics overall.
Speaker #4: We now have, and we're working through, the planning and the execution as we go to the second half of the year on the second grocery customer, which I think in itself will be a significant inflection point for that segment.
Speaker #4: And then I think, in logistics, we're going to continue to really lean into more pilots—expanded pilots with a number of our other customers and with our large customer, where we drove outsized growth in 2025, largely on our execution, as some of the other competitors struggled and we gained some share.
Speaker #4: We're anticipating that a large customer has also provided lower output for volume guidance this year. And we're in a factor that then we'll see how that goes in logistics overall.
Speaker #4: As it relates to the other high-value categories, let me just reinforce again. For us, high-value categories are critical because they provide both a growth catalyst and acceleration for growth.
Deon Stander: As it relates to the other high-value categories, and let me just reinforce again, for us, high-value categories are critical because they provide both a growth catalyst and acceleration for growth. Most of our high-value categories are typically higher growth in our base business, and they have a typically high margin profile. So as we accelerate that portfolio mix, we're going to get natural mix accretion both on our growth and on our margin profile as well. Typically, we expect, Ghansham, the majority of these high-value categories to be at kind of mid-single digit plus. They vary by individual ones across materials and solutions.
Deon Stander: As it relates to the other high-value categories, and let me just reinforce again, for us, high-value categories are critical because they provide both a growth catalyst and acceleration for growth. Most of our high-value categories are typically higher growth in our base business, and they have a typically high margin profile. So as we accelerate that portfolio mix, we're going to get natural mix accretion both on our growth and on our margin profile as well. Typically, we expect, Ghansham, the majority of these high-value categories to be at kind of mid-single digit plus. They vary by individual ones across materials and solutions.
Speaker #4: Most of our high-value categories are typically higher growth in our base business, and they have a typically high margin profile. So, as we accelerate that portfolio mix, we're going to get natural mix accretion both on our growth and on our margin profile as well.
Speaker #4: Typically, we expect, Gancham, the majority of these high-value categories to be at kind of mid-single-digit-plus. They vary by individual ones across Materials and Solutions.
Speaker #4: In BESCOM, and in BELEX as you asked specifically, we're anticipating kind of mid-single-digit growth, all things being equal, assuming no fundamental change in environment for those two categories. As we continue to see new customers for BESCOM, the rollout of their stalling software really will enable in-store productivity for the existing customer base.
Deon Stander: In Vestcom and Embelex, as you asked specifically, we're anticipating mid-single digit growth, all things being equal, assuming no fundamental change in environment for those two categories as we continue to see new customers for Vestcom, the rollout of their storeLink software that really will enable install productivity for the existing customer base. And then on Embelex, while we are up against a headwind as it relates to World Cup last year, we also believe that depending on how the in-arena execution goes during World Cup, we could benefit from some of that as well. So we'll wait and see how that plays out overall. To your final question around quarterly guidance, I think Q4 demonstrated we continue to see a very dynamic environment, which limits our visibility really on the market side of the growth piece. I just want to remind everybody of the last five years.
Deon Stander: In Vestcom and Embelex, as you asked specifically, we're anticipating mid-single digit growth, all things being equal, assuming no fundamental change in environment for those two categories as we continue to see new customers for Vestcom, the rollout of their storeLink software that really will enable install productivity for the existing customer base. And then on Embelex, while we are up against a headwind as it relates to World Cup last year, we also believe that depending on how the in-arena execution goes during World Cup, we could benefit from some of that as well. So we'll wait and see how that plays out overall. To your final question around quarterly guidance, I think Q4 demonstrated we continue to see a very dynamic environment, which limits our visibility really on the market side of the growth piece. I just want to remind everybody of the last five years.
Speaker #4: And then in BELEX, while we are up against a headwind as related to World Cup last year, we also believe that, depending on how the in-arena execution goes during World Cup, we could benefit from some of that as well.
Speaker #4: So we'll wait and see to how that plays out overall. To your final question around quarterly guidance, I think Q4 demonstrated we continue to see a very dynamic environment, which limits our visibility really on the market side of the growth piece.
Speaker #4: I just want to remind everybody, over the last five years we've seen a number of largely one-off cyclical events. Negatively: pandemic, inflation, supply chain destocking, and tariff consequences.
Deon Stander: We've seen a number of largely one-off cyclical events negatively: pandemic, inflation, supply chain destruction, tariff consequences. And as a short-term cycle business, it makes having a long-term perspective during these types of events very challenging. I remain really confident, very high confidence in our strategies, the actions we're taking to drive growth and differentiation to deliver value creation. But I'm not planning for any macro tailwinds in 2026. And so for the foreseeable future, we're going to continue to provide updates and outlooks on a quarterly basis.
Deon Stander: We've seen a number of largely one-off cyclical events negatively: pandemic, inflation, supply chain destruction, tariff consequences. And as a short-term cycle business, it makes having a long-term perspective during these types of events very challenging. I remain really confident, very high confidence in our strategies, the actions we're taking to drive growth and differentiation to deliver value creation. But I'm not planning for any macro tailwinds in 2026. And so for the foreseeable future, we're going to continue to provide updates and outlooks on a quarterly basis.
Speaker #4: And as a short-term cycle business, it makes having a long-term perspective during these types of events very challenging. I remain really confident, very high confidence in our strategies, the actions we're taking to drive growth and differentiation to deliver value creation.
Speaker #4: But I'm not planning for any macro tailwinds in 2026. And so, for the foreseeable future, we're going to continue to provide updates and outlooks on a quarterly basis.
Speaker #2: Our next question comes from John McNulty, BMO Capital Markets. Please proceed with your question.
Operator: Our next question comes from John McNulty, BMO Capital Markets. Please proceed with your question.
Operator: Our next question comes from John McNulty, BMO Capital Markets. Please proceed with your question.
Speaker #5: Yeah, thanks very much for taking my question. And I appreciate some of the color and the historical perspective around the high-value categories. Maybe digging into that a little bit more deeply—I guess, can you help us to think about the margin differential for the high-value categories versus kind of the core?
John McNulty: Yeah. Thanks very much for taking my question. And appreciate some of the color and the historical perspective around the high-value categories. Maybe digging into that a little bit more deeply, I guess, can you help us to think about the margin differential for the high-value categories versus kind of the core? And also, has that shifted or changed much as we've progressed from, say, 2019 to 2025, either gotten higher or has it contracted at all? How should we be thinking about that?
John McNulty: Yeah. Thanks very much for taking my question. And appreciate some of the color and the historical perspective around the high-value categories. Maybe digging into that a little bit more deeply, I guess, can you help us to think about the margin differential for the high-value categories versus kind of the core? And also, has that shifted or changed much as we've progressed from, say, 2019 to 2025, either gotten higher or has it contracted at all? How should we be thinking about that?
Speaker #5: And also, has that shifted or changed much as we've progressed from, say, 2019 to 2025, either gotten higher or has it contracted at all?
Speaker #5: How should we be thinking about
Speaker #5: that? Yeah.
Greg Lovins: Yeah. Thanks, John, for the question. I think we haven't talked specifically about margins by specific category. But in general, of course, as we talked about, for a product category to be a high-value category, it's got to have higher variable margins than the rest of the portfolio. And that's a big part of our focus there is as we grow faster in these high-value spaces, it allows us to continue expanding margins as well. So typically, they are a number of points above our average, certainly significantly above the base categories as well. When you go back and look over the last few years, you can see our gross profit margins over the last few years have gone up a couple of points.
Gregory S. Lovins: Yeah. Thanks, John, for the question. I think we haven't talked specifically about margins by specific category. But in general, of course, as we talked about, for a product category to be a high-value category, it's got to have higher variable margins than the rest of the portfolio. And that's a big part of our focus there is as we grow faster in these high-value spaces, it allows us to continue expanding margins as well. So typically, they are a number of points above our average, certainly significantly above the base categories as well. When you go back and look over the last few years, you can see our gross profit margins over the last few years have gone up a couple of points.
Speaker #4: Thanks, John, for the question. I think we haven't talked specifically about margins by specific category, but in general, of course, as we talked about, for a product category to be a high-value category, it's got to have higher variable margins than the rest of the portfolio.
Speaker #4: And that's a big part of our focus there is as we grow faster in these high-value spaces, it allows us to continue expanding margins as well.
Speaker #4: So typically, they are a number of points above our average, certainly above significantly above the base categories as well. When you go back and look over the last few years, you can see our gross profit margins over the last few years have gone up a couple of points in a big part of that is this shift towards high-value categories that you can see on the slide that we laid out.
Greg Lovins: A big part of that is this shift towards high-value categories that you can see on the slide that we laid out, in addition to the productivity actions and other things that we've been driving as well. This shift towards more and more high-value category growth is definitely showing up in our gross profit margins as we've expanded those over the last few years.
Gregory S. Lovins: A big part of that is this shift towards high-value categories that you can see on the slide that we laid out, in addition to the productivity actions and other things that we've been driving as well. This shift towards more and more high-value category growth is definitely showing up in our gross profit margins as we've expanded those over the last few years.
Speaker #4: In addition to the productivity actions and other things that we've been driving as well, but this shift towards more and more high-value category growth is definitely showing up in our gross profit margins as we've expanded those over the last few years.
Speaker #3: And John, I'll just add that our high-value categories right across the business, I think, really enable us to have a resilient portfolio, allows us to pull multiple levers should things happen.
Deon Stander: And John, I'll just add that our high-value categories right across the business, I think, really enable us to have a resilient portfolio, allows us to pull multiple levers should things happen. I'll also say from a high-value category perspective, which you saw grow more than 6% since 2019 on an organic basis, really resonates with customers because we're providing differentiation at the point that a solution or a problem is being solved. These examples include what we do with adhesive tapes in the automotive industry, not just to bind things together, but, for example, to provide additional noise and sound vibration dampening. So they provide utility beyond the simple application. That extends also then to some of the examples we coded on our Intelligent Labels platform where we brought new innovation, for example, in food to enable protein.
Deon Stander: And John, I'll just add that our high-value categories right across the business, I think, really enable us to have a resilient portfolio, allows us to pull multiple levers should things happen. I'll also say from a high-value category perspective, which you saw grow more than 6% since 2019 on an organic basis, really resonates with customers because we're providing differentiation at the point that a solution or a problem is being solved. These examples include what we do with adhesive tapes in the automotive industry, not just to bind things together, but, for example, to provide additional noise and sound vibration dampening. So they provide utility beyond the simple application. That extends also then to some of the examples we coded on our Intelligent Labels platform where we brought new innovation, for example, in food to enable protein.
Speaker #3: I will also say, from a high-value category perspective—which you saw grow more than 6% since 2019 on an organic basis—really resonates with customers, because we're providing differentiation at the point that a solution or a problem is being solved.
Speaker #3: These examples include what we do with adhesive tapes in the automotive industry, not just to bind things together, but for example, to provide additional noise and sound vibration dampening.
Speaker #3: So they provide utility beyond the simple application. That extends also then to some of the examples we coded on our intelligent labels, platform where we brought new innovation, for example, in food to enable protein.
Speaker #3: But it extends also to other areas, for example, our Materials group, where we've really launched new innovation on our CleanFlake portfolio, which enables recyclability not just historically on, for example, PET for PE, but HDPE, now glass, and other packaging as well.
Deon Stander: But it extends also to other areas, for example, our Materials Group, where we've really launched new innovation on our CleanFlake portfolio, which enables recyclability not just historically on, for example, PE, but HDPE, now glass, and other packaging as well. And so for us, a final constituent component of our high-value categories is the need for constant innovation outcome acceleration because that continues to bolster margins. Typically, when we bring a new product that's highly differentiated, we're able to extract more value from that because we create more value. And that's been a very big part of the focus over the last couple of years, and it will be so moving forward as well.
Deon Stander: But it extends also to other areas, for example, our Materials Group, where we've really launched new innovation on our CleanFlake portfolio, which enables recyclability not just historically on, for example, PE, but HDPE, now glass, and other packaging as well. And so for us, a final constituent component of our high-value categories is the need for constant innovation outcome acceleration because that continues to bolster margins. Typically, when we bring a new product that's highly differentiated, we're able to extract more value from that because we create more value. And that's been a very big part of the focus over the last couple of years, and it will be so moving forward as well.
Speaker #3: And so, for us, a final constituent component of our high-value categories is the need for constant innovation outcome acceleration, because that continues to bolster margins. Typically, when we bring a new product that's highly differentiated, we're able to extract more value from that because we create more value.
Speaker #3: And that's been a very big part of the focus over the last couple of years, and it will be so moving forward as well.
Speaker #3: well. Our next
Operator: Our next question comes from Jeff Zekauskas, J.P. Morgan. Please proceed with your question.
Operator: Our next question comes from Jeff Zekauskas, J.P. Morgan. Please proceed with your question.
Speaker #2: The question comes from Jeff Secaucus, JPMorgan. Please proceed with your question.
Speaker #6: Thank you very much. Two-part question. Since you signed your agreement with Walmart, have you had more inquiries from other sellers of grocery items? And secondly, on slide 14, you talk about the majority of 2025 temporary savings, including incentive comp, being a headwind.
Jeff Zekauskas: Thanks very much. Two-part question. Since you signed your agreement with Walmart, have you had more inquiries from other sellers of grocery items? And secondly, on slide 14, you talk about the majority of 2025 temporary savings, including incentive comp, being a headwind. How large is that headwind?
Jeffrey Zekauskas: Thanks very much. Two-part question. Since you signed your agreement with Walmart, have you had more inquiries from other sellers of grocery items? And secondly, on slide 14, you talk about the majority of 2025 temporary savings, including incentive comp, being a headwind. How large is that headwind?
Speaker #6: How large has that headwind?
Speaker #4: Yeah, Jeff, I think the Walmart announcement with our partnership thing, I think, has added an additional catalyst to interest and inquiry within our pipeline.
Deon Stander: Yeah, Jeff. I think the Walmart announcement with our partnership, I think, has added an additional catalyst to interest and inquiry within our pipeline. We've always known that bringing a digital identity to physical objects, particularly, for example, in the grocery space, will be able to allow you to reduce waste because you're able to manage your best-before expiration date in a much better way, reduce labor efficiency or reduce labor and increase efficiency that goes with it, and finally, also provide a better consumer experience. At the end of the day, freshness is one of the biggest drivers in Net Promoter Score in the grocery environment. And the fresher items are, the more they're available, typically, grocers do better than they grow. And that's the basis of what Walmart's expansion with us wanted.
Deon Stander: Yeah, Jeff. I think the Walmart announcement with our partnership, I think, has added an additional catalyst to interest and inquiry within our pipeline. We've always known that bringing a digital identity to physical objects, particularly, for example, in the grocery space, will be able to allow you to reduce waste because you're able to manage your best-before expiration date in a much better way, reduce labor efficiency or reduce labor and increase efficiency that goes with it, and finally, also provide a better consumer experience. At the end of the day, freshness is one of the biggest drivers in Net Promoter Score in the grocery environment. And the fresher items are, the more they're available, typically, grocers do better than they grow. And that's the basis of what Walmart's expansion with us wanted.
Speaker #4: We've always known that bringing a digital identity to physical objects particularly, for example, in the grocery space, will be able to allow you to reduce waste because you're able to manage your best-before expiry date in a much better way.
Speaker #4: Reduce labor efficiency or reduce labor and increase efficiency that goes with it and finally also provide a better consumer experience. At the end of the day, freshness is one of the biggest drivers in that promoter score in the grocery environment.
Speaker #4: And the fresher items are, the more they're available, typically grocers do better than they go, and that's the basis of what Walmart's expansion with us wanted.
Speaker #4: Since we've seen that announcement, our pipeline has actually grown with a number of other grocers and/or both on the bakery and protein side, continuing to approach us.
Deon Stander: Since we've seen that announcement, our pipeline has actually grown with a number of other grocers and/or both on the bakery and protein side continuing to approach us. This is both domestically in Europe as well as in, sorry, domestically in the United States as well as in Europe. And so I'm confident that as we go through this year, we're going to see more pilots and trials through that, not anticipating another rollout during the start of this year, but certainly setting the framework and the groundwork for us to be able to do so as we move forward.
Deon Stander: Since we've seen that announcement, our pipeline has actually grown with a number of other grocers and/or both on the bakery and protein side continuing to approach us. This is both domestically in Europe as well as in, sorry, domestically in the United States as well as in Europe. And so I'm confident that as we go through this year, we're going to see more pilots and trials through that, not anticipating another rollout during the start of this year, but certainly setting the framework and the groundwork for us to be able to do so as we move forward.
Speaker #4: This is both domestically in Europe as well as in sorry, domestically in the United States as well as in Europe. And so I'm confident that as we go through this year, we're going to see more pilots and trials through that.
Speaker #4: Not anticipating another roll-out during the start of this year, but certainly setting the framework and the groundwork for us to be able to do so as we move forward.
Speaker #6: Yeah. And on your second question, Jeff, those temporary savings, again, which is largely an incentive compensation, impact year over year. Obviously, incentive comp in 2025, as we perform below our original expectations, was a tailwind in '25 and will be a headwind in 2026.
Greg Lovins: Yeah. And on your second question, Jeff, those temporary savings, again, which is largely an incentive compensation impact year over year, obviously, incentive comp in 2025, as we performed below our original expectations, was a tailwind in 2025 and will be a headwind in 2026. That is on an order of magnitude basis, probably pretty similar to the size of the restructuring actions, that $50 million that I highlighted there. Now, on top of that restructuring, that isn't the only productivity we're driving. We continue to drive ongoing productivity all the time in terms of ELS savings, looking at reducing scrap, being more efficient in our operations. Deon touched on digital investments to continue to get more efficient in our G&A type of functions as well.
Gregory S. Lovins: Yeah. And on your second question, Jeff, those temporary savings, again, which is largely an incentive compensation impact year over year, obviously, incentive comp in 2025, as we performed below our original expectations, was a tailwind in 2025 and will be a headwind in 2026. That is on an order of magnitude basis, probably pretty similar to the size of the restructuring actions, that $50 million that I highlighted there. Now, on top of that restructuring, that isn't the only productivity we're driving. We continue to drive ongoing productivity all the time in terms of ELS savings, looking at reducing scrap, being more efficient in our operations. Deon touched on digital investments to continue to get more efficient in our G&A type of functions as well.
Speaker #6: That is on an order of magnitude basis, probably pretty similar to the size of the restructuring actions that that $50 million that I highlighted there.
Speaker #6: Now, on top of that restructuring, that isn't the only productivity we're driving. We continue to drive ongoing ELS savings, looking at reducing scrap, being more efficient in our operations. Deon touched on digital investments to continue to get more efficient in our G&A type of functions as well.
Speaker #6: And then, in the prior year, we talked about, in 2025, having some network inefficiencies related to some of the tariff shifts of production in parts of our portfolio as well.
Greg Lovins: And then in prior year, we talked about in 2025 having some network inefficiencies related to some of the tariff shifts of production in parts of our portfolio as well. So we would expect other productivity actions on top of that restructuring to help give us a benefit in 2026 versus 2025.
Gregory S. Lovins: And then in prior year, we talked about in 2025 having some network inefficiencies related to some of the tariff shifts of production in parts of our portfolio as well. So we would expect other productivity actions on top of that restructuring to help give us a benefit in 2026 versus 2025.
Speaker #6: So, we would expect other productivity actions on top of that restructuring to help give us a benefit in 2026 versus...
Speaker #6: '25.
Speaker #2: Our next question comes
Operator: Our next question comes from Josh Spector from UBS. Please proceed with your question.
Operator: Our next question comes from Josh Spector from UBS. Please proceed with your question.
Speaker #2: from Josh Spector from UBS. Please proceed with your
Speaker #2: question. Yeah.
Josh Spector: Yeah. Hi. Good morning. I wanted to ask on just the apparel market in general. I think the declines that you saw in Q4 were more than we expected. And as you show in your appendix, the sell-out from apparel has been semi-resilient. Your volumes have been down. I guess, how are you thinking of the trajectory from here? I guess our view is there's probably a tough comp in Q1 but then easier comps in Q2, but you have a better ear to the ground on how apparel producers are going to be producing and if that's going to be a tailwind or not at this point.
Joshua Spector: Yeah. Hi. Good morning. I wanted to ask on just the apparel market in general. I think the declines that you saw in Q4 were more than we expected. And as you show in your appendix, the sell-out from apparel has been semi-resilient. Your volumes have been down. I guess, how are you thinking of the trajectory from here? I guess our view is there's probably a tough comp in Q1 but then easier comps in Q2, but you have a better ear to the ground on how apparel producers are going to be producing and if that's going to be a tailwind or not at this point.
Speaker #7: Hi. Good morning. I wanted to ask on just the apparel market in general. I think the declines that you saw in fourth quarter were more than we expected, and as you show in your appendix, the sell-out from apparel has been semi-resilient.
Speaker #7: Your volumes have been down. I guess, how are you thinking about the trajectory from here? I guess our view is there's probably a tough comp in Q1, but then easier comps in Q2.
Speaker #7: But you have a better ear to the ground on how apparel producers are going to be producing and if that's going to be a tailwind or not at this point.
Speaker #7: But you have a better ear to the ground on how apparel producers are going to be producing, and if that's going to be a tailwind or not at this point.
Speaker #4: Yeah, Josh. Let me just spend a bit of time just digging into that. At the high level, I'd still say there's a high degree of tariff uncertainty.
Deon Stander: Yeah, Josh. Let me just spend a bit of time just digging into that. At the high level, I'd still say there's a high degree of tariff uncertainty. So while largely tariff rates are assumed to be in place, as you've seen, I think everybody has seen, that can pretty dramatically change depending on what the administration decides to do with the broader tariff policy. And that can have an impact at any one point in time until all these tariffs are actually formally ratified. That said, as we went into Q4, we anticipated to see some of the low single-digit apparel-based volumes. We actually saw greater than that, around about 7% decline. I think a couple of factors played into that.
Deon Stander: Yeah, Josh. Let me just spend a bit of time just digging into that. At the high level, I'd still say there's a high degree of tariff uncertainty. So while largely tariff rates are assumed to be in place, as you've seen, I think everybody has seen, that can pretty dramatically change depending on what the administration decides to do with the broader tariff policy. And that can have an impact at any one point in time until all these tariffs are actually formally ratified. That said, as we went into Q4, we anticipated to see some of the low single-digit apparel-based volumes. We actually saw greater than that, around about 7% decline. I think a couple of factors played into that.
Speaker #4: So, while largely tariff rates are assumed to be in place—as you've seen, I think everybody has seen—that can pretty dramatically change depending on what the administration decides to do with the broader tariff policy.
Speaker #4: And that can have an impact at any one point in time until all these tariffs are actually formally ratified. That said, as we went into the fourth quarter, we anticipated seeing some of the low single-digit apparel-based volumes.
Speaker #4: We actually saw greater than that at around about 7% decline. I think a couple of factors played into that. I remember saying last time on this call that what we've seen is a change in the way apparel retailers have been managing their supply chains, given this volatility and uncertainty.
Deon Stander: I remember saying last time on this call that what we've seen is a change in the way apparel retailers have been managing their supply chain given this volatility and uncertainty. Historically, apparel retailers would typically place season's orders 60% in advance and then typically chase 40%. As this concern around how much tariff policy would impact end retail prices and the likely impact on consumer demand, they were starting to have less forward-placing and chasing more. Our anticipation as we entered the third quarter, given what we saw sequentially during the quarter, was that that volume would slightly continue to do that. As we know now, it was a case of I think some of that volume in Q3 was in anticipation of the holiday season, a slight stockup, but then they didn't chase as much volume as they went into the fourth quarter.
Deon Stander: I remember saying last time on this call that what we've seen is a change in the way apparel retailers have been managing their supply chain given this volatility and uncertainty. Historically, apparel retailers would typically place season's orders 60% in advance and then typically chase 40%. As this concern around how much tariff policy would impact end retail prices and the likely impact on consumer demand, they were starting to have less forward-placing and chasing more. Our anticipation as we entered the third quarter, given what we saw sequentially during the quarter, was that that volume would slightly continue to do that. As we know now, it was a case of I think some of that volume in Q3 was in anticipation of the holiday season, a slight stockup, but then they didn't chase as much volume as they went into the fourth quarter.
Speaker #4: Historically, apparel retailers would typically place a season's orders 60% in advance and then typically chase 40%. As this policy would impact end concern around how much tariff retail prices and the likely impact on consumer demand that we're starting to have less forward placing and chasing more, our anticipation, as we enter the third quarter, given what we saw during that sequentially during the quarter, was that that volume would slightly continue to do that.
Speaker #4: As we know now, it was a case of, I think, some of that volume in Q3 was in anticipation of the holiday season—a slight stock-up—but then they didn't chase as much volume as they went into the fourth quarter.
Speaker #4: I think, focusing on what we've heard from our customers, we're focusing much more on protecting margins on overall lower volumes, so not as much price discounting.
Deon Stander: I think focusing what we've heard from our customers, focusing much more on protecting margins on overall lower volumes, so not as much price discounting. The growth that you saw in retail is largely price-related, not necessarily unit-related. That's also underpinned if you look at one of the attaching schedules we have. If you look at the imagery sales ratios, for example, in the United States, they're at one of the lowest points ever since the pandemic as well. As we look forward, given that performance, I would anticipate seeing growth during this year. Certainly not in Q1 will be challenging because we lap against that non-tariff-impacted Q1 2025. But as we move forward, all things being equal, we should see some growth. I caveat that only with, I think, there's going to be continued uncertainty and continued caution on our apparel retailers' part.
Deon Stander: I think focusing what we've heard from our customers, focusing much more on protecting margins on overall lower volumes, so not as much price discounting. The growth that you saw in retail is largely price-related, not necessarily unit-related. That's also underpinned if you look at one of the attaching schedules we have. If you look at the imagery sales ratios, for example, in the United States, they're at one of the lowest points ever since the pandemic as well. As we look forward, given that performance, I would anticipate seeing growth during this year. Certainly not in Q1 will be challenging because we lap against that non-tariff-impacted Q1 2025. But as we move forward, all things being equal, we should see some growth. I caveat that only with, I think, there's going to be continued uncertainty and continued caution on our apparel retailers' part.
Speaker #4: The growth that you saw in retail is largely price-related; it's not necessarily unit-related. And that's also underpinned if you look at one of the attaching schedules we have—if you look at the image of sales ratios, for example, in the United States, they're at one of the lowest points ever since the pandemic as well.
Speaker #4: As we look forward, given that performance, I would anticipate seeing growth during this year, because we lap against that non-tariff impacted first quarter '24, '25.
Speaker #4: But as we move forward, all things being equal, we should see some growth. I caveat that only continued uncertainty and continued caution on our apparel retailers' part.
Speaker #4: They're going to continue to watch how post-holiday consumer spending and the consumer sentiment relates to discretionary items like apparel and the price impacts that they've had to put up on those garments overall.
Deon Stander: They're going to continue to watch how post-holiday consumer spending and the consumer sentiment relates to discretionary items like apparel and the price impacts that they've had to put up on those garments overall. And so I think it's going to be a watch and see. If that plays out with more volume, then we'll certainly sort of be benefited by that. But I'm not yet certain that's going to be the case. And we'll give an update as we get to the end of Q1 on what we're seeing from apparel customers generally.
Deon Stander: They're going to continue to watch how post-holiday consumer spending and the consumer sentiment relates to discretionary items like apparel and the price impacts that they've had to put up on those garments overall. And so I think it's going to be a watch and see. If that plays out with more volume, then we'll certainly sort of be benefited by that. But I'm not yet certain that's going to be the case. And we'll give an update as we get to the end of Q1 on what we're seeing from apparel customers generally.
Speaker #4: And so I think it's going to be a watch and see. If that plays out, with more volume, then we'll certainly sort of be benefited by that.
Speaker #4: But I'm not yet certain that's going to be the case, and we'll give an update as we get to the end of the first quarter and what we're seeing from apparel customers generally.
Speaker #2: Our next question comes from Matt Roberts. From Raymond James. Please proceed with your
Operator: Our next question comes from Matt Roberts from Raymond James. Please proceed with your question.
Operator: Our next question comes from Matt Roberts from Raymond James. Please proceed with your question.
Speaker #2: question. Hey, good
Greg Lovins: Hey. Good morning, Deon, Greg, and Gilly. If I could try to dig just a bit deeper into some of the non-apparel Intelligent Labels category. First, on general retail in 2025, I believe there were some pauses in compliance rollouts at a major customer. Is that compliance enforcement coming back in 2026, or are you expecting any incremental volumes from that customer with further category rollouts? And then on logistics, again, I know you talked to the major customer and their revenue outlooks and puts and takes there, but any benefit for them rolling out automation to further facilities, or are you fully deployed there? And the pilots you mentioned in logistics, is that new pilots or expanding pilots that have already been in place? Thanks for taking the questions.
Matthew Roberts: Hey. Good morning, Deon, Greg, and Gilly. If I could try to dig just a bit deeper into some of the non-apparel Intelligent Labels category. First, on general retail in 2025, I believe there were some pauses in compliance rollouts at a major customer. Is that compliance enforcement coming back in 2026, or are you expecting any incremental volumes from that customer with further category rollouts? And then on logistics, again, I know you talked to the major customer and their revenue outlooks and puts and takes there, but any benefit for them rolling out automation to further facilities, or are you fully deployed there? And the pilots you mentioned in logistics, is that new pilots or expanding pilots that have already been in place? Thanks for taking the questions.
Speaker #4: Morning, Deon, Greg, and Gilly. If I could try to dig just a bit deeper into some of the non-apparel intelligent labels category. First, on general retail in 2025, I believe there were some positives and compliance rollouts at a major customer.
Speaker #4: Was that compliance enforcement coming back in 2026, or are you expecting any incremental volumes from that customer with further category rollouts? And then on logistics, again, I know you talked about the major customer and the revenue outlooks and puts and takes there, but any benefit for them rolling out automation to further facilities, or are you fully deployed there?
Speaker #4: And the pilots you mentioned in logistics, is that new pilots, or expanding pilots that have already been in place? Thanks for taking the questions.
Speaker #4: Sure, Matt. Let me go through those sequentially. So in general retail, what we saw general retail impacted last year as we called out quite significantly by really the tariff environment.
Deon Stander: Sure, Matt. Let me go through those sequentially. So in general retail, what we saw general retail impacted last year, as we called out, quite significantly by really the tariff environment. Most general merchandise was oriented out of China and the surrounding areas. And so there was quite a drop-off in demand, at least from retailers, for that product as they were thinking through their supply chains. The secondary piece in this is because there was such difficulty in that, you do sense that some of the compliance that was in those categories was probably held back a bit to make sure that they could work through the supply chain issues. All things being equal, that should return, and that should be partly a tailwind for us in that regard as we look forward.
Deon Stander: Sure, Matt. Let me go through those sequentially. So in general retail, what we saw general retail impacted last year, as we called out, quite significantly by really the tariff environment. Most general merchandise was oriented out of China and the surrounding areas. And so there was quite a drop-off in demand, at least from retailers, for that product as they were thinking through their supply chains. The secondary piece in this is because there was such difficulty in that, you do sense that some of the compliance that was in those categories was probably held back a bit to make sure that they could work through the supply chain issues. All things being equal, that should return, and that should be partly a tailwind for us in that regard as we look forward.
Speaker #4: Most general merchant DICE was orientated out of China, and the surrounding areas, and so there was quite a drop-off in demand, at least from retailers, for that product as they were thinking through their supply chains.
Speaker #4: The secondary piece in this is because there was such difficulty in that we do sense that some of the compliance that was in that in those categories is probably held back a bit to make sure that they could work through the supply chain issues.
Speaker #4: All things being equal, that should return, and that should be partly a tailwind for us in that regard as we look forward. Again, that's with the caveat that we don't see other changes on tariffs as we move forward.
Deon Stander: Again, that's with the caveat that we don't see any other changes on tariffs as we move forward. I think in terms of logistics, we've seen the benefit that has come from automating effectively their last-mile performance centers. And Matt, we're actually fully automated across those over here. Now, what we're in discussion with that particular customer around is how do they extend that to some of their international operations as we work through that during this year? And then the secondary piece is, is there other opportunities as they think about moving to what we call the first mile, the shipper side of it as well? In terms of the other pilots and trials, we're engaged in discussions. They have been piloting and trialing with almost every other major logistics company, both in the United States and in Europe.
Deon Stander: Again, that's with the caveat that we don't see any other changes on tariffs as we move forward. I think in terms of logistics, we've seen the benefit that has come from automating effectively their last-mile performance centers. And Matt, we're actually fully automated across those over here. Now, what we're in discussion with that particular customer around is how do they extend that to some of their international operations as we work through that during this year? And then the secondary piece is, is there other opportunities as they think about moving to what we call the first mile, the shipper side of it as well? In terms of the other pilots and trials, we're engaged in discussions. They have been piloting and trialing with almost every other major logistics company, both in the United States and in Europe.
Speaker #4: I think, in terms of logistics, we've seen the benefit that has come from automating effectively their last mile fulfillment centers. And Matt, we're actually fully automated across those over here.
Speaker #4: Now, what we're in discussion with that particular customer around is how do they extend that to some of their international that during this year.
Speaker #4: And then the secondary piece is, is there other opportunities they think about moving to what we call the first mile, the shipper side of it as well?
Speaker #4: In terms of the other pilots and trials, we're engaged in discussions that have been piloting and trialing with almost every other major logistics company. What we see this year is an expansion of some of those pilots, being again from a certain limited number of fulfillment centers or inbound fulfillment centers to a broader range.
Deon Stander: What we see this year is an expansion of some of those pilots being, again, from a certain limited number of fulfillment centers or inbound fulfillment centers to a broader range, and also looking at different use cases they think through, for example, dangerous goods and managing highly valuable goods as well. So we'll keep you all updated on that. Our anticipation is those pilots will expand as we go through the year.
Deon Stander: What we see this year is an expansion of some of those pilots being, again, from a certain limited number of fulfillment centers or inbound fulfillment centers to a broader range, and also looking at different use cases they think through, for example, dangerous goods and managing highly valuable goods as well. So we'll keep you all updated on that. Our anticipation is those pilots will expand as we go through the year.
Speaker #4: And also looking at different use cases they think through, for managing highly valuable goods as well. Example, dangerous goods. So we'll keep you all updated on that.
Speaker #4: Our anticipation is those pilots will expand as we go through the
Speaker #4: year. Our next question comes
Operator: Our next question comes from Anthony Pettinari from Citigroup. Please proceed with your question.
Operator: Our next question comes from Anthony Pettinari from Citigroup. Please proceed with your question.
Speaker #2: From Anthony Pettinari, from Citigroup. Please proceed with your question.
Speaker #2: question. Good morning.
Anthony Pettinari: Good morning.
Anthony Pettinari: Good morning.
Speaker #4: Good morning.
Jeff Zekauskas: Good morning.
Gregory S. Lovins: Good morning.
Speaker #5: Understanding you're not giving full your guidance, is there a way to think about the quarterly of the 50 million restructuring benefits throughout the year?
Anthony Pettinari: Hey, understanding you're not giving full-year guidance, is there a way to think about the quarterly cadence of the timing of the $50 million restructuring benefits throughout the year? And then, I guess, as well, the roll-off of the temporary benefit headwind that Jeff asked about. And then, just, I guess, while I'm at it, you talked about Walmart sales benefiting really in the second half of the year. Should we think of that as a step up from Q3 to Q4 with kind of a stronger exit rate into 2027, or is there anything you can kind of say about the cadence of that rollout?
Anthony Pettinari: Hey, understanding you're not giving full-year guidance, is there a way to think about the quarterly cadence of the timing of the $50 million restructuring benefits throughout the year? And then, I guess, as well, the roll-off of the temporary benefit headwind that Jeff asked about. And then, just, I guess, while I'm at it, you talked about Walmart sales benefiting really in the second half of the year. Should we think of that as a step up from Q3 to Q4 with kind of a stronger exit rate into 2027, or is there anything you can kind of say about the cadence of that rollout?
Speaker #5: And then, I guess as well, the rolloff of the temporary benefit headwind that Jeff asked about. And then just, I guess, while I'm at it, you talked about Walmart sales benefiting really in the second half of the year.
Speaker #5: Should we think of that as a step up from Q3 to Q4, with kind of a stronger exit rate into '27, or is there anything you can say about the cadence of that?
Speaker #5: rollout? Yeah,
Greg Lovins: Yeah. Thanks, Anthony. So I think restructuring, a good chunk of that, about two-thirds of that would be carryover projects we executed at some point during 2025 or at least kicked off near the end of the year in 2025. So I would expect from that perspective to be somewhat balanced across the year on that restructuring benefit as we have carryover savings in the first part or first few quarters of the year, and then new programs kicking in as we move through the remainder of the year. So overall, largely balanced across the quarters. From a headwind perspective, I think when you look at incentive comp, we really started to see bigger impacts on that, I would say, in Q2 and beyond.
Gregory S. Lovins: Yeah. Thanks, Anthony. So I think restructuring, a good chunk of that, about two-thirds of that would be carryover projects we executed at some point during 2025 or at least kicked off near the end of the year in 2025. So I would expect from that perspective to be somewhat balanced across the year on that restructuring benefit as we have carryover savings in the first part or first few quarters of the year, and then new programs kicking in as we move through the remainder of the year. So overall, largely balanced across the quarters. From a headwind perspective, I think when you look at incentive comp, we really started to see bigger impacts on that, I would say, in Q2 and beyond.
Speaker #4: thanks, Anthony. So I think restructuring a good chunk of that, about two-thirds of that, would be carryover of projects we executed at some point during 2025 or at least kicked off near the end of the year in 2025.
Speaker #4: So I would expect, from that perspective, to be somewhat balanced across the year on that restructuring benefit, as we have carryover savings in the first part—or first few quarters—of the year, and then new programs kicking in as we move through the remainder of the year.
Speaker #4: So, overall, largely balanced across the quarters. From a headwind perspective, I think when you look at incentive comp, we're really starting to see bigger impacts on that, I would say, in the second quarter and beyond.
Speaker #4: There's a bit of a headwind in the first quarter, but I think that picks up a little bit as we go into the middle quarters of the year.
Greg Lovins: There's a bit of a headwind in Q1, but I think that picks up a little bit as we go into the middle quarters of the year.
Gregory S. Lovins: There's a bit of a headwind in Q1, but I think that picks up a little bit as we go into the middle quarters of the year.
Speaker #4: Yeah, Anthony, on the Walmart question specifically, recall we said that the rollout if it took place over the next couple of years, '26 and '27, would be worth for us somewhere between low double digits to sorry, high single digit to low double digits in value for us based on our 2025 sales.
Deon Stander: Yeah. And Anthony, on the Walmart question specifically, recall we said that the rollout, if it took place over the next couple of years, 2026 and 2027, would be worth for us somewhere between low double digits to sorry, high single digit to low double digits in value for us based on our 2025 sale. Our working assumption has always been that we would start this roughly in Q3. It would ramp up in Q4 and then continue accelerating during 2027 as you go through both the departments - this is bakery, protein, and deli - as well as geographically rolling out through the stores. And that's still our current working assumption.
Deon Stander: Yeah. And Anthony, on the Walmart question specifically, recall we said that the rollout, if it took place over the next couple of years, 2026 and 2027, would be worth for us somewhere between low double digits to sorry, high single digit to low double digits in value for us based on our 2025 sale. Our working assumption has always been that we would start this roughly in Q3. It would ramp up in Q4 and then continue accelerating during 2027 as you go through both the departments - this is bakery, protein, and deli - as well as geographically rolling out through the stores. And that's still our current working assumption.
Speaker #4: Our working assumption has always been that we would start this roughly in the third quarter. It would ramp up in the fourth quarter, and then continue to accelerate during 2027.
Speaker #4: As you go through both the departments, this is bakery, protein, and deli, as well as geographically rolling out through the stores. And that's current still our current working assumption.
Speaker #2: Our next question comes from Mike Roxlin. Of Truist Securities. Please proceed with your
Operator: Our next question comes from Mike Roxland of Truist Securities. Please proceed with your question.
Operator: Our next question comes from Mike Roxland of Truist Securities. Please proceed with your question.
Speaker #6: Thank you, Deon. Greg Gilley, for taking my questions.
Mike Roxland: Thank you, Deon, Greg, and Gilly, for taking my questions.
Michael Roxland: Thank you, Deon, Greg, and Gilly, for taking my questions.
Jeff Zekauskas: Hey, Mike.
Gregory S. Lovins: Hey, Mike.
Speaker #4: Can I.
Josh Spector: Hey, Mike.
Deon Stander: Hey, Mike.
Speaker #6: Deon, hey, guys. Deon, in your comments, you mentioned not being happy with the organic growth and that you intend to drive better growth, especially in the high-value categories.
Mike Roxland: Hey, guys. Deon, in your comments, you mentioned not being happy with the organic growth and that you intend to drive better growth, especially in the high-value categories. Can you share what you started to do or what you're looking to do earlier this year to drive that growth and what type of incremental growth you're expecting in 2026 from higher growth in the high-value categories? And then just following up quickly on the apparel and general retail comments that you made about your confidence in that accelerating, what are your customers telling you about their plans for 2026? And is it a matter of new adoption continuing to increase, or is it more related to existing customers extending their use? Thank you.
Michael Roxland: Hey, guys. Deon, in your comments, you mentioned not being happy with the organic growth and that you intend to drive better growth, especially in the high-value categories. Can you share what you started to do or what you're looking to do earlier this year to drive that growth and what type of incremental growth you're expecting in 2026 from higher growth in the high-value categories? And then just following up quickly on the apparel and general retail comments that you made about your confidence in that accelerating, what are your customers telling you about their plans for 2026? And is it a matter of new adoption continuing to increase, or is it more related to existing customers extending their use? Thank you.
Speaker #6: Can you share what you started to do, or what you're looking to do, earlier this year to drive that growth? And what type of incremental growth are you expecting in 2026 from higher growth in the high-value categories?
Speaker #6: And then just following up quickly on the apparel and general retail comments that you made about your confidence in getting in that accelerating, what are your customers' telling you about their plans for 2026?
Speaker #6: And is it a matter of new adoption, continuing to increase, or is it more related to existing customers extending their
Speaker #6: use? Thank you. Okay.
Deon Stander: Okay. Let me see if I can cover all those in, Mike. Yeah. From a, I am not happy with the way our organic growth trajectory has been over the last couple of years. I know that we can, and we've demonstrated this repeatedly, manage through any environment, and we've demonstrated our ability to manage and deliver margin and earnings in that regard. But we fundamentally need to make sure that we're going to continue to significantly outperform the market. And that's our focus as we've gone through the back end of last year into this year. And I touched on really four elements, I think that's sorry, three elements that'll really deliver on that. The first is, clearly, our high-value categories, when they are able to solve customer issues, have an ability to accelerate growth. They typically deliver higher growth rates and, as Greg said, at higher margins.
Deon Stander: Okay. Let me see if I can cover all those in, Mike. Yeah. From a, I am not happy with the way our organic growth trajectory has been over the last couple of years. I know that we can, and we've demonstrated this repeatedly, manage through any environment, and we've demonstrated our ability to manage and deliver margin and earnings in that regard. But we fundamentally need to make sure that we're going to continue to significantly outperform the market. And that's our focus as we've gone through the back end of last year into this year. And I touched on really four elements, I think that's sorry, three elements that'll really deliver on that. The first is, clearly, our high-value categories, when they are able to solve customer issues, have an ability to accelerate growth. They typically deliver higher growth rates and, as Greg said, at higher margins.
Speaker #4: Let me see if I can cover all those in, Mike. Yeah, from I am not happy with the way our organic growth trajectory has been over the last couple of years.
Speaker #4: I know that we can, and we've demonstrated this repeatedly, manage through any environment. We've demonstrated our ability to manage and deliver margin and earnings in that regard.
Speaker #4: But we fundamentally need to make sure that we're going to continue to significantly outperform the market. And that's our focus as we've gone through the back end of last year into this year.
Speaker #4: And I touched on really four elements, I think—that, sorry, three elements that will really deliver on that. The first is, clearly, our high-value categories, when they are able to solve customer issues, have an ability to accelerate growth.
Speaker #4: They typically deliver higher growth rates, and as Greg said, at higher margins. And we're focused on making sure that a broader range of new customers understand the value they can bring—whether it's in our tapes business, getting new tapes distributors and end customers; whether it's in apparel, getting new loss prevention customers; whether it's in
Deon Stander: And we're focused on making sure that a broader range of new customers understand the value they can bring, whether it's in our tapes business getting new tapes distributors and end customers, whether it's in apparel getting new loss prevention customers, whether it's in our materials business benefiting from our CleanFlake portfolio. Our focus there is generating new customers and then also identifying new segments that we can move the technology in. Food is just one example of that that we've done during the back end of last year and moving forward. So there's a focus on new customer acquisition for high-value categories. The second area, for me, is actually a more important one and be less visible as we let's say this near term, but certainly more visible as we go longer term, which is accelerating our innovation outcomes.
Deon Stander: And we're focused on making sure that a broader range of new customers understand the value they can bring, whether it's in our tapes business getting new tapes distributors and end customers, whether it's in apparel getting new loss prevention customers, whether it's in our materials business benefiting from our CleanFlake portfolio. Our focus there is generating new customers and then also identifying new segments that we can move the technology in. Food is just one example of that that we've done during the back end of last year and moving forward. So there's a focus on new customer acquisition for high-value categories. The second area, for me, is actually a more important one and be less visible as we let's say this near term, but certainly more visible as we go longer term, which is accelerating our innovation outcomes.
Speaker #1: our In materials business , benefiting from our clean plate portfolio , our focus there is generating new customers and then also identifying new segments that we the technology and can move just one example of that food is that we've done during the back end of last year and moving new customers , and then also identifying segments new that we can move the technology in food is just one example of that that we've done during the back end of last year .
Speaker #1: And moving forward. So there's a focus on new customer acquisition for high-value categories. The second area for me is actually a more important one.
Speaker #1: It will be less visible as we, let's say, in the near term, but certainly more visible as we go longer term, which is accelerating our innovation outcomes.
Deon Stander: So this is not just having more new products and solutions, but actually commercializing them quicker. And in that regard, I listed a whole number of those, whether they are around our IL solutions, our digital solutions in Materials Group, our ability to leverage our material science capability and our digital identification capability with the insights that we have through the supply chain, whether it's at a retailer, at manufacturer, at converter, allows us to ultimately be able to really design more innovation at a quicker rate that solves problems for customers. And then the third element, which I touched on, was, in addition, is can we leverage the progress we made in our own digital journey and the more automation we're putting into the business, as well as our learnings that we've had over the last year or so on artificial intelligence and the use of that technology?
Deon Stander: So this is not just having more new products and solutions, but actually commercializing them quicker. And in that regard, I listed a whole number of those, whether they are around our IL solutions, our digital solutions in Materials Group, our ability to leverage our material science capability and our digital identification capability with the insights that we have through the supply chain, whether it's at a retailer, at manufacturer, at converter, allows us to ultimately be able to really design more innovation at a quicker rate that solves problems for customers. And then the third element, which I touched on, was, in addition, is can we leverage the progress we made in our own digital journey and the more automation we're putting into the business, as well as our learnings that we've had over the last year or so on artificial intelligence and the use of that technology?
Speaker #1: So this is not having over more new products and solutions , but actually commercializing them quicker that regard , I listed a whole number of those , whether they are around our aisle solutions , our digital solutions in materials group , our ability to leverage our science capability material and our digital identification capability with the insights that we have through the supply chain , whether it's at a .
Speaker #1: At manufacturer, at converter, and in, allows us to ultimately be able to really design more innovation at a quicker rate.
Speaker #1: That solves problems for customers . the third element , which I touched on was And then in can leverage the we progress we made in digital our own the more journey ?
Speaker #1: Automation into the business, as well as our learnings that we've had over the last year or so, on artificial intelligence and the use of that technology.
Deon Stander: And I see those actually being able to provide even more differentiation that we could then ultimately express in driving new customers and getting into new segments. I think the application of those three combined in different ways will allow us to, for example, drive more automation in some of our manual finishing that we currently have across our businesses, automate finishing, automate packaging, a small example of that. Another example would be using AI and IoT sensors. When we apply them to some of our large, for example, coating assets, we're able to make real-time inline coat weight adjustments across the web, which allows for less downtime, and they will save us more money in that regard, and that we're able to use to seek new customers as well.
Deon Stander: And I see those actually being able to provide even more differentiation that we could then ultimately express in driving new customers and getting into new segments. I think the application of those three combined in different ways will allow us to, for example, drive more automation in some of our manual finishing that we currently have across our businesses, automate finishing, automate packaging, a small example of that. Another example would be using AI and IoT sensors. When we apply them to some of our large, for example, coating assets, we're able to make real-time inline coat weight adjustments across the web, which allows for less downtime, and they will save us more money in that regard, and that we're able to use to seek new customers as well.
Speaker #1: And I see actually being able to provide even more differentiation that we could then ultimately express in driving new customers and getting into new segments.
Speaker #1: I think application of those, the three combined in different ways, will allow us to, for example, drive more time automation in our manual finishing than in some of what we currently have across our businesses.
Speaker #1: Automate finishing , automate packaging , a small example of that , another example would be using AI and IoT sensors . When we apply them to some of our example , large , for coating assets , we're able to make real time inline coat weight adjustments across the web , which allows for less downtime and is able to save us more money in that regard .
Deon Stander: And then the third one, really, is we've actually started to use a lot more AI to shorten some of the actual innovation cycles. I'll give you a real example of that. It historically has taken us anywhere from eight to 10 weeks to design a new inlay in Intelligent Labels. We built with a partner a proprietary AI model that takes all of our learnings around the physics of designing inlays and what it takes. And now we're able to reduce that cycle down to roughly two weeks. That allows us to produce these new products and new solutions much quicker than our previous capacity had the ability to do. And then finally, I think Greg touched on this as well.
Deon Stander: And then the third one, really, is we've actually started to use a lot more AI to shorten some of the actual innovation cycles. I'll give you a real example of that. It historically has taken us anywhere from eight to 10 weeks to design a new inlay in Intelligent Labels. We built with a partner a proprietary AI model that takes all of our learnings around the physics of designing inlays and what it takes. And now we're able to reduce that cycle down to roughly two weeks. That allows us to produce these new products and new solutions much quicker than our previous capacity had the ability to do. And then finally, I think Greg touched on this as well.
Speaker #1: And that we're able to use to to to customers as well . And then the third one really is we've actually started to seek new use a lot more AI to shorten some of the actual innovation I'll give you a real cycles .
Speaker #1: example of that . It historically has taken us anywhere from 8 to 10 weeks to design inlay in a new intelligent labels . We built with a , with a with a partner , a proprietary AI model all of that takes our learnings around the physics of designing inlays and what it And now we're able to takes .
Speaker #1: Reduce that cycle down to roughly two weeks. That allows us to produce new products and new solutions quicker than our previous capacity had.
Deon Stander: We're certainly taking all the learnings we're seeing both on automation and increasing on AI to how do we actually leverage and automate some of the more manual tasks across our SG&A that our business. We've had multiple examples. Now, I will say we're at the start of the journey in that regard, particularly from an AI perspective. But I think we've learned a lot over the last year or so that I think has really allowed us to see the value that we can create. In addition, we've also recruited and added to our leadership a chief digital officer because I fundamentally believe that capability will also be an accelerant to the way we move forward. And to your second question around apparel and general retail, the way I think about that overall is that we continue to see new apparel customers adopt IL.
Deon Stander: We're certainly taking all the learnings we're seeing both on automation and increasing on AI to how do we actually leverage and automate some of the more manual tasks across our SG&A that our business. We've had multiple examples. Now, I will say we're at the start of the journey in that regard, particularly from an AI perspective. But I think we've learned a lot over the last year or so that I think has really allowed us to see the value that we can create. In addition, we've also recruited and added to our leadership a chief digital officer because I fundamentally believe that capability will also be an accelerant to the way we move forward. And to your second question around apparel and general retail, the way I think about that overall is that we continue to see new apparel customers adopt IL.
Speaker #1: much The ability to do . And then finally , I think Greg touched on this as well . We're certainly taking all the learnings we've seen , both on automation and increasing AI to how do we actually automate leverage and some of the more manual tasks across our DNA that our business with multiple examples ?
Speaker #1: Now , I will say we're at the start of the journey in that regard from a particularly from an AI perspective . But I think we've learned a last year or lot over the so that I think is really allowed us to see the value that we can create .
Speaker #1: In addition, we've also recruited and added to our leadership a Chief Digital Officer, because I fundamentally believe that capability will also be an accelerant to the way we move and to.
Speaker #1: Your forward second question around apparel and general retail, you know, the way I think about that overall is that we continue to see new apparel customers adopt IL.
Deon Stander: We went through the late stages of a rollout so early stages of a rollout last in Q4 with a large apparel retailer. We continue to see significant interest in leveraging the technology, not just for inventory accuracy, but also for loss prevention. The work that we did were the proprietary work with, for example, the Inditex Group. And in addition, I continue to see a pipeline where we get new apparel customers continuing to want to use. So overall, those rollouts, as I mentioned earlier, one will part as we go through the year and ramp through the year as well.
Deon Stander: We went through the late stages of a rollout so early stages of a rollout last in Q4 with a large apparel retailer. We continue to see significant interest in leveraging the technology, not just for inventory accuracy, but also for loss prevention. The work that we did were the proprietary work with, for example, the Inditex Group. And in addition, I continue to see a pipeline where we get new apparel customers continuing to want to use. So overall, those rollouts, as I mentioned earlier, one will part as we go through the year and ramp through the year as well.
Speaker #1: We went late through the stages of a rollout. So, early stage of a rollout last in the fourth quarter with a large apparel retailer.
Speaker #1: But continue to see significant in technology , just not interest just for leveraging the inventory accuracy , but also for loss prevention . The the work that we did with the proprietary with , for work Inditex group and in addition , I continue to see a pipeline where we get new apparel customers continually wanting to use .
Speaker #1: So, overall, those mentioned earlier on – we will part as we go through, and the year ramps through the year as well.
Operator: Our next question comes from the line of John Dunigan from Jefferies. Please proceed with your question.
Operator: Our next question comes from the line of John Dunigan from Jefferies. Please proceed with your question.
John Dunigan: Hey, Greg. Thanks for all the information thus far. I wanted to start off with just looking at your inventory levels. I mean, you touched on some of your customers in response to Josh's question and how they're managing their inventories. But I noticed that your inventories to sales ratios are elevated compared to where they were at pre-pandemic levels. So with the modest demand, at least starting off here in 2026, is there an ability to drive inventories lower to better match to the current demand environment? And then just kind of building on that, I noticed that you had stepped up your CapEx to about $260 here in 2026.
John Dunigan: Hey, Greg. Thanks for all the information thus far. I wanted to start off with just looking at your inventory levels. I mean, you touched on some of your customers in response to Josh's question and how they're managing their inventories. But I noticed that your inventories to sales ratios are elevated compared to where they were at pre-pandemic levels. So with the modest demand, at least starting off here in 2026, is there an ability to drive inventories lower to better match to the current demand environment? And then just kind of building on that, I noticed that you had stepped up your CapEx to about $260 here in 2026.
Speaker #2: Our next question comes from the line of John Dunigan from Jefferies. Please proceed.
Speaker #3: Hey Greg , thanks for all the thanks for all the . Information thus far . I wanted to start off with just looking at your inventory levels .
Speaker #3: your I mean , you touched your on some of customers and response to Josh's question and how managing their they're inventories . But I noticed that your inventory sales ratios are elevated compared to where were at they pre-pandemic levels .
Speaker #3: So with the modest demand , at least starting off here in 2026 , is there an ability to drive inventories lower to better match to the current demand environment ?
Speaker #3: And then just kind of building on that ? You know , I noticed that you had stepped up your your CapEx to about 260 here in 2026 , just wondering if that's more tied to growth projects , some maybe delayed maintenance since you kind of pulled it down a little bit in 25 or cost savings initiatives .
John Dunigan: Just wondering if that's more tied to growth projects, maybe some delayed maintenance since you kind of pulled it down a little bit in 2025, or cost-savings initiatives; just how that money is being spent would be helpful. Thanks.
John Dunigan: Just wondering if that's more tied to growth projects, maybe some delayed maintenance since you kind of pulled it down a little bit in 2025, or cost-savings initiatives; just how that money is being spent would be helpful. Thanks.
Greg Lovins: Sure. Thanks for the question. So if I look at our inventory turns over the last few years, they've been fairly steady, at least at the end of the year, with where we've been. I think part of what's happening across the businesses, we do have a little bit of a mixed impact as we grow faster in the high-value categories, where typically those categories are a bit more working capital intensive, and similar in emerging markets where we have a little bit higher working capital percents as well than we do in the US businesses, for instance. So typically, we're seeing a little bit of upward pressure on working capital driven by the growth in those areas. Now, we're driving a lot of productivity elsewhere to help offset that as we've gone across the years. And that's been a focus.
Gregory S. Lovins: Sure. Thanks for the question. So if I look at our inventory turns over the last few years, they've been fairly steady, at least at the end of the year, with where we've been. I think part of what's happening across the businesses, we do have a little bit of a mixed impact as we grow faster in the high-value categories, where typically those categories are a bit more working capital intensive, and similar in emerging markets where we have a little bit higher working capital percents as well than we do in the US businesses, for instance. So typically, we're seeing a little bit of upward pressure on working capital driven by the growth in those areas. Now, we're driving a lot of productivity elsewhere to help offset that as we've gone across the years. And that's been a focus.
Speaker #3: how that Just money is being spent would be helpful . Thanks .
Speaker #4: Sure . Thanks for the question . So if I look at our our inventory terms over the last few years , have been steady , at least at the end of the year fairly with where we've been , I think part of what's happening across the businesses , we do have a little bit of a mixed impact as we grow faster in the high value categories .
Speaker #4: We're typically—those categories are a bit more working capital intensive, and similar in emerging markets, where we have a little bit higher working capital percents as well than we do in the US.
Speaker #4: Businesses. For instance, so typically we're seeing a little bit of upward pressure on working capital driven by the growth in those areas.
Greg Lovins: We saw that even from the middle of this year. I think we talked about our working capital being a bit high and driving that down by the end of the year. I think we did a good job delivering that. So we've got some kind of mixed pressure that we're offsetting through a number of initiatives there. I think when we look at CapEx, as you said, in 2025, it was $200 million. I will say there's another about $30 million of cloud technology-related investments that shows up in the operating section of the cash flow statement. So it's about $230 million when you add that to the rest of the CapEx for 2025. We pulled that down from our original guidance for 2025 as we saw the softer volumes.
Gregory S. Lovins: We saw that even from the middle of this year. I think we talked about our working capital being a bit high and driving that down by the end of the year. I think we did a good job delivering that. So we've got some kind of mixed pressure that we're offsetting through a number of initiatives there. I think when we look at CapEx, as you said, in 2025, it was $200 million. I will say there's another about $30 million of cloud technology-related investments that shows up in the operating section of the cash flow statement. So it's about $230 million when you add that to the rest of the CapEx for 2025. We pulled that down from our original guidance for 2025 as we saw the softer volumes.
Speaker #4: Now we're driving a lot of productivity elsewhere to help offset that . As we've across the gone years , and that's focus . And been a we saw that even from the middle of this year .
Speaker #4: I think we talked about our working capital being a bit high and driving that down by the end of the year . And I think I think we did a good job that .
Speaker #4: So we've got delivering some kind of mixed pressure that we're offsetting through a number of initiatives . There . I think when we looked at CapEx , as you said in 2025 , it was 200 million .
Speaker #4: I will say there's another about $30 million of cloud technology-related investments that shows up in the operating section of the cash flow statement.
Speaker #4: So it's about $230 million. When you add that to the rest of the CapEx for 2025, we pulled that down from our original guidance for 2025.
Greg Lovins: So we're increasing that a bit in 2026, still, I think, below where it was a couple of years prior to that, but continuing to drive productivity initiatives as well as continue to prepare for capacity for the future as well.
Gregory S. Lovins: So we're increasing that a bit in 2026, still, I think, below where it was a couple of years prior to that, but continuing to drive productivity initiatives as well as continue to prepare for capacity for the future as well.
Speaker #4: As we saw the softer volumes . So we're we're increasing that a bit in 2026 . Still , I think below where it was a couple of years prior to that .
Speaker #4: But continuing to drive productivity initiatives, as well as continuing to prepare for capacity for the future as well.
Operator: Our next question comes from George Staffos from Bank of America Securities, Inc. Please proceed with your question.
Operator: Our next question comes from George Staffos from Bank of America Securities, Inc. Please proceed with your question.
Speaker #2: Our next question comes from George Staphos from Bank of America Securities, Inc. Please proceed with your question.
George Staffos: Deon, you mentioned, I think, in answering Mike's question, in trying to accelerate innovation, that you're trying to spend more, if you will, capital at acquiring customers and getting them to try the products. Obviously, there's a mixed benefit from HVC, but do you see the customer acquisition cost being at such a rate over the next couple of years where it sort of dilutes the impact of HVC on your margin and mix on a going forward basis? How should we think about that as a way to parse that at all? Separate question, just in general, paper supply, any concerns on that for this year relative to the materials business as capacity has been coming out of the market, or do you feel relatively comfortable with your supply position for 2026? Thanks and good luck in the year.
George Staphos: Deon, you mentioned, I think, in answering Mike's question, in trying to accelerate innovation, that you're trying to spend more, if you will, capital at acquiring customers and getting them to try the products. Obviously, there's a mixed benefit from HVC, but do you see the customer acquisition cost being at such a rate over the next couple of years where it sort of dilutes the impact of HVC on your margin and mix on a going forward basis? How should we think about that as a way to parse that at all? Separate question, just in general, paper supply, any concerns on that for this year relative to the materials business as capacity has been coming out of the market, or do you feel relatively comfortable with your supply position for 2026? Thanks and good luck in the year.
Speaker #5: Diane , you mentioned , I think , in answering Mike's question trying to accelerate , in innovation , that you're trying to spend more , if you will , capital at acquiring customers and getting them to try the products .
Speaker #5: Obviously , that's a there's a mixed benefit from from HPC . But do you see the customer acquisition costs being at such a rate over the next couple of years where it sort of dilutes the impact of HPC on your margin and mix on a going forward basis .
Speaker #5: How should we think about that as a way to parse out at all separate question , just just in general paper supply , any concerns on that for this year relative to the materials business ?
Speaker #5: As capacity has been coming out of the market, do you feel relatively comfortable with your supply position for 2026? Thanks, and good luck in the year.
Deon Stander: Thanks, George. Yeah. Just on the sort of the customer acquisition costs, I don't anticipate and not expecting any increase in customer acquisition costs as we move forward. We already have go-to-market teams prepared and ready. And I could argue that they've been somewhat underutilized as we went through the last year relative to volume. So as we step up, and some of the learnings that we've taken, they've helped sharpen our mechanisms for customer acquisition, shorten the cycles for both proving our benefits, and shorten the cycles for how we position and print. And then on the back of that, we continue to leverage a little bit of automation to help improve that as well, George. So I'm not anticipating an increase in customer acquisition costs moving forward. Should have no real impact on margins. Second piece is to paper supply.
Deon Stander: Thanks, George. Yeah. Just on the sort of the customer acquisition costs, I don't anticipate and not expecting any increase in customer acquisition costs as we move forward. We already have go-to-market teams prepared and ready. And I could argue that they've been somewhat underutilized as we went through the last year relative to volume. So as we step up, and some of the learnings that we've taken, they've helped sharpen our mechanisms for customer acquisition, shorten the cycles for both proving our benefits, and shorten the cycles for how we position and print. And then on the back of that, we continue to leverage a little bit of automation to help improve that as well, George. So I'm not anticipating an increase in customer acquisition costs moving forward. Should have no real impact on margins. Second piece is to paper supply.
Speaker #1: Thanks , George . Yeah , just on the sort of the customer acquisition costs , I don't anticipate and not expecting any increase in customer acquisition costs as forward .
Speaker #1: Thanks , George . Yeah , just on the sort of the customer acquisition costs , I don't anticipate and not expecting any increase in customer acquisition costs as we move We already have go to market teams prepared and ready .
Speaker #1: I could And argue that they've been somewhat underutilized as we went through the last year relative to volume . So as we step up and some of the learnings that we've taken , they've helped sharpen our mechanisms for customer acquisition , shorten the cycles for both proving out benefits , shorten the for how we print .
Speaker #1: And cycles, and then on the position back of that, we continue to leverage a little bit of automation to improve that as well.
Speaker #1: Help George. So I'm not anticipating an increase in customer acquisition moving forward. Should have no real impact on margins. Second piece is to paper supply.
Deon Stander: We've continued to make progress in making sure, following that significant supply chain disruption that we had a couple of years ago, that we are as appropriately balanced from a risk perspective in terms of paper supply overall. So we have made sure that our supply, particularly as it relates to paper glassine and price stock, we have multiple sources that we can use, largely geographically centered but not exclusively. We continue to make sure that what we've done in that regard with our procurement team, which has been we've put a lot of focus over the last couple of years, is making sure we've driven from somewhat transactional approaches with smaller suppliers to much more strategic, where we now have much more certainty about the capacity we have available to us that we can call on as we need as well, George.
Deon Stander: We've continued to make progress in making sure, following that significant supply chain disruption that we had a couple of years ago, that we are as appropriately balanced from a risk perspective in terms of paper supply overall. So we have made sure that our supply, particularly as it relates to paper glassine and price stock, we have multiple sources that we can use, largely geographically centered but not exclusively. We continue to make sure that what we've done in that regard with our procurement team, which has been we've put a lot of focus over the last couple of years, is making sure we've driven from somewhat transactional approaches with smaller suppliers to much more strategic, where we now have much more certainty about the capacity we have available to us that we can call on as we need as well, George.
Speaker #1: We've continued to make progress in making sure, following that significant supply chain disruption that we had a couple of years ago, that we are as appropriately balanced from a risk perspective in terms of paper supply overall.
Speaker #1: And so we have made sure that our supply , particularly as it relates to paper glassine and fresh stock , we have multiple sources that we can use largely geographically centered but not exclusively .
Speaker #1: And we continue to make sure that what we've done in that regard with a procurement team, which we've put a lot of focus on over the last couple of years, is we've driven from somewhat transactional approaches.
Speaker #1: The smaller suppliers to much more strategic, where we now have much more certainty about the capacity we have available to us that we can call on as we need as well.
George Staffos: Thank you very much.
George Staphos: Thank you very much.
Operator: Our final question today comes from the line of John McNulty from BMO Capital Markets. Please proceed with your question.
Operator: Our final question today comes from the line of John McNulty from BMO Capital Markets. Please proceed with your question.
Speaker #1: George .
Speaker #5: Thank you very much
Speaker #2: Our today final comes from the line of John McNulty from BMO Capital Markets. Please proceed with your question.
John McNulty: Yeah. Thanks for taking my follow-up. In the past, it seems historically that pricing was pretty much used to offset raw material-related inflation. It seems like right now, your employee costs are kind of a new level of inflation that we really haven't seen before. And I know in the past, you've largely tried to offset that with efficiency. Do we get to a point if the inflation around employee costs continues the way that it has where you start trying to work that through as part of your pricing asks as well? And how should we think about that in 2026?
John McNulty: Yeah. Thanks for taking my follow-up. In the past, it seems historically that pricing was pretty much used to offset raw material-related inflation. It seems like right now, your employee costs are kind of a new level of inflation that we really haven't seen before. And I know in the past, you've largely tried to offset that with efficiency. Do we get to a point if the inflation around employee costs continues the way that it has where you start trying to work that through as part of your pricing asks as well? And how should we think about that in 2026?
Speaker #6: Yeah . Thanks for taking my follow up . In the past , it seems historically that pricing was pretty much used to offset raw material related inflation .
Speaker #6: It seems like right now your employee costs are kind of a new level of inflation that we really haven't seen before. And I know in the past you've largely tried to offset that with efficiency.
Speaker #6: Do we get to a point, if the inflation around employee costs continues the way that it has, where you start trying to work that through as part of your pricing asks as well, and how should we think about that in 2026?
Greg Lovins: Yeah. Thanks, John. So to your point, typically, our pricing is following our raw material input cost. And obviously, as we've talked about, as we've seen some deflation in 2025, we've had price down to go with that, largely in sync with the deflation that we've seen there. And really, we're continuing or I guess I should say is we've also talked about with our material reengineering, in a period where we're having an inflationary period, we use that to help offset the inflation in addition to price. In a deflationary period, we're typically looking at that productivity from material reengineering to help offset things like wage inflation, as an example.
Gregory S. Lovins: Yeah. Thanks, John. So to your point, typically, our pricing is following our raw material input cost. And obviously, as we've talked about, as we've seen some deflation in 2025, we've had price down to go with that, largely in sync with the deflation that we've seen there. And really, we're continuing or I guess I should say is we've also talked about with our material reengineering, in a period where we're having an inflationary period, we use that to help offset the inflation in addition to price. In a deflationary period, we're typically looking at that productivity from material reengineering to help offset things like wage inflation, as an example.
Speaker #4: Yeah . Thanks , John . So to your point , typically our pricing is following our raw material input cost . And we've obviously as talked about , as we've seen some deflation in 2025 , we've had price down to go with that largely in sync with the deflation that we've seen there .
Speaker #4: And really, we're continuing—or I guess I should say we've also talked about—with our material re-engineering, in a period where we're having an inflationary period, we use that to help offset the inflation.
Speaker #4: In addition to price, and a deflationary period, we’re typically looking at that productivity from material re-engineering to help offset things like wage inflation, as an example.
Greg Lovins: I think we look at that material reengineering as a bucket that helps over a cycle, especially in a flatter or more deflationary period, to help offset some of those costs like wage inflation that come into the business.
Gregory S. Lovins: I think we look at that material reengineering as a bucket that helps over a cycle, especially in a flatter or more deflationary period, to help offset some of those costs like wage inflation that come into the business.
Speaker #4: So I think we look at that material re-engineering as a bucket that helps over a cycle, especially in a flatter or more deflationary period, to help offset some of those, like wage costs, inflation that come into the business.
Operator: Mr. Gilchrist, there are no further questions at this time. I will now turn the call back to you for any closing remarks.
Operator: Mr. Gilchrist, there are no further questions at this time. I will now turn the call back to you for any closing remarks.
Speaker #2: Mr. Gilchrist, there are no further questions at this time. I will now turn the call back to you for any closing remarks.
William Gilchrist: Thanks, Miriam. To wrap up, we navigated dynamic 2025 to deliver solid results for the fourth quarter and full year. Our focus and execution on our strategic priorities drives our confidence in returning to stronger growth and underscores our ability to deliver superior value across the cycle. Thank you all for joining today. This now concludes the call.
William Gilchrist: Thanks, Miriam. To wrap up, we navigated dynamic 2025 to deliver solid results for the fourth quarter and full year. Our focus and execution on our strategic priorities drives our confidence in returning to stronger growth and underscores our ability to deliver superior value across the cycle. Thank you all for joining today. This now concludes the call.
Speaker #2: Thanks, Miriam. To wrap up, we navigated a dynamic 2025 to deliver solid results for the fourth quarter and full year. Our focus and execution on our strategic priorities drives our confidence in returning to stronger growth and underscores our ability to deliver superior value across the cycle.
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.
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 #2: Thank you all for joining today. This now concludes the call. Ladies and gentlemen, that does conclude the conference call for today.
