Avery Dennison Q3 Organic Sales Rise 3.7%; 2026 EPS Outlook at $10.10-$10.24

Avery Dennison Corporation (NYSE: AVY) reported third-quarter 2026 organic sales growth of 3.7% and a 2% increase in adjusted earnings per share, as growth in both high-value and base categories helped offset customer inventory destocking and pressure on companywide margins. The company expects full-year adjusted EPS of $10.10 to $10.24, with most remaining inventory reductions from first-half customer stocking expected to occur in the fourth quarter.

Preliminary, unaudited net sales rose 5.2% to $2.3 billion. Sales increased 4.9% excluding currency effects, while acquisitions contributed 1.3 percentage points to reported growth. Avery Dennison estimated that destocking reduced organic growth by about two percentage points, roughly half the impact it had anticipated for the quarter.

Reported operating income was $273 million, with operating margin declining to 11.7% from 11.9%. Adjusted operating margin contracted 60 basis points to 12.1%, and adjusted EBITDA margin fell 70 basis points to 15.8%. Reported EPS was $2.24, while adjusted EPS increased 2% to $2.42 despite an estimated 6% drag from destocking.

Management characterized underlying performance, excluding estimated customer inventory effects, as approximately 6% organic sales growth and about 8% adjusted EPS growth.

Materials Group leads sales growth

Materials Group sales increased 8.5% to $1.6 billion, including 4.9% organic growth. Both high-value and base categories grew at mid-single-digit rates. The result reflected low-single-digit volume and mix growth and a mid-single-digit pricing benefit.

Profitability weakened despite the sales increase. The segment’s reported operating margin declined to 13.7% from 14.3%, while adjusted operating margin fell 110 basis points to 14.1%. Adjusted EBITDA margin also decreased 110 basis points, to 16.4%. Productivity gains were more than offset by unfavorable volume and mix and higher employee-related costs, the company said.

Within the group’s high-value portfolio, Specialty and Durable Labels grew at a high-single-digit organic rate, Performance Materials rose by mid-single digits, and Graphics and Reflective products increased by low single digits.

Solutions Group margins expand as sales remain subdued

Solutions Group reported sales declined 1.8% to $687 million but increased 0.8% organically. High-value category sales were comparable with the prior year, including a headwind from logistics intelligent labels, while base categories grew by low single digits. Overall apparel-related categories increased at a mid-single-digit rate.

The segment’s reported operating margin improved to 10.5% from 9.7%. Adjusted operating margin rose 80 basis points to 10.8%, and adjusted EBITDA margin increased by the same amount to 17.8%. Productivity more than offset part of the impact from higher employee-related costs.

Across Avery Dennison’s high-value categories, organic sales grew by mid-single digits in the quarter. These businesses represented about 45% of company sales in 2025. Embelex posted mid-single-digit growth despite comparison with the prior World Cup cycle, while Vestcom grew by low single digits.

Enterprise-wide Intelligent Labels sales increased at a low-single-digit organic rate. Apparel and general retail rose by about 10%, supported by apparel program expansions and a recovery in general retail. Food and logistics declined by mid-teens as growth in food was outweighed by soft logistics demand and comparison with outsized logistics share gains in 2025.

Management expects apparel and general retail growth to continue, supported by new apparel programs and the general retail recovery. In food, the company anticipates faster growth as a new grocery customer ramps up, pilots expand and commercialization efforts continue with the largest U.S. grocery retailer. Avery Dennison is also expanding logistics pilots with additional customers.

Cash flow and 2026 outlook

Adjusted free cash flow totaled $246 million in the third quarter and $716 million for the first nine months. Avery Dennison returned $481 million to shareholders through dividends and share repurchases during that period. Its net debt-to-adjusted EBITDA ratio was 2.2.

For 2026, the company expects reported EPS of $9.45 to $9.59 and adjusted EPS of $10.10 to $10.24. Its outlook assumes approximately 5.5% reported sales growth and about 3.5% organic growth. Currency translation is expected to contribute roughly 1.5%, and a prior-year acquisition is projected to add about 1%, while a calendar adjustment is expected to reduce full-year growth by 0.4%, including a roughly 1.5% fourth-quarter headwind.

The outlook includes an estimated net EPS benefit of about $0.30 from currency translation and a lower share count, partly offset by a higher adjusted tax rate and increased interest expense. Avery Dennison now expects more than $65 million of incremental restructuring savings, compared with its previous estimate of more than $60 million. Most temporary savings realized in 2025, largely related to incentive compensation, remain a year-over-year headwind.

The company is targeting adjusted free cash flow conversion of at least 100% and expects fixed and information-technology capital spending of about $240 million, down from its previous estimate of roughly $260 million.

The outlook remains subject to the timing and extent of customer destocking, global economic conditions, tariffs and geopolitical uncertainty. Avery Dennison also identified raw-material costs and availability, competitive pricing, foreign-exchange movements, its ability to offset inflation through productivity or pricing, and the execution and integration of acquisitions as significant near-term risks.