Adhesive manufacturing company Avery Dennison (NYSE: AVY) fell short of the market’s revenue expectations in Q2 CY2025, with sales flat year on year at $2.22 billion. Its non-GAAP profit of $2.42 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Avery Dennison’s second quarter results largely reflected the effects of shifting trade policy and segment-specific demand fluctuations, as the company navigated a complex economic backdrop. While revenue was flat year over year and missed Wall Street’s expectations, earnings per share came in slightly ahead of consensus. Management pointed to resilient execution in the Materials Group, where enhanced product mix and operational productivity supported margins, even as volume growth remained modest. CEO Deon Stander explained that “changes in trade policy throughout the quarter had both direct and indirect impacts on our business,” particularly in apparel and general retail categories. Meanwhile, growth in high-value categories, especially in graphics and reflective solutions, partially offset declines in base business lines.

Looking forward, Avery Dennison’s guidance for the next quarter reflects caution amid ongoing trade uncertainty, muted apparel demand, and continued inflationary pressure. The company expects earnings to remain comparable to the prior year but highlighted productivity efforts, innovation in Intelligent Labels, and expansion in food and logistics as key levers for eventual growth acceleration. CFO Greg Lovins emphasized, “the outlook remains uncertain and customer feedback and sentiment remains muted,” particularly in the apparel segment, while Stander reiterated the company’s focus on network efficiency and innovation to drive competitive differentiation. Management is aiming to return to earnings growth by the end of the year, assuming no significant deterioration in macroeconomic trends.

Key Insights from Management’s Remarks

Management attributed second quarter performance to a combination of resilient execution in core operations and targeted innovation in high-value categories, while ongoing trade policy shifts and muted apparel demand weighed on segment results.

• Trade policy impacts: New and changing tariffs led to both direct cost increases and indirect effects on customer order timing, especially in apparel and general retail. Avery Dennison responded by adjusting sourcing, applying select pricing surcharges, and shifting production volumes to limit cost escalation.

• High-value product mix: The Materials Group benefited from a favorable sales mix, with high-value categories like graphics and reflective films outperforming base business lines. Management noted these products now represent over a third of Materials Group sales and are outpacing core categories in growth, particularly in North America and Asia.

• Segment divergence: While the Materials Group delivered stable margins and modest volume growth, the Solutions Group saw declining apparel and general retail sales offset by double-digit growth in food, logistics, and other sectors. The rollout of productivity solutions at CVS Health was highlighted as a driver for Vestcom, a key part of the Solutions Group’s performance.

• Intelligent Labels (IL) platform: Sales in the Intelligent Labels segment were flat year over year but improved sequentially. Apparel and general retail categories declined, but food and logistics applications grew in the mid-teens. Management remains focused on expanding innovation and addressing network efficiency to accelerate IL growth, citing successful pilots and rollouts in grocery and logistics.

• Cost discipline and capital allocation: The company maintained strong margins through productivity initiatives and disciplined cost management, including restructuring and discretionary expense reductions. Avery Dennison increased its quarterly dividend and continued share repurchases, supported by a solid balance sheet and a net debt to adjusted EBITDA ratio of 2.3.

Drivers of Future Performance

For the second half of the year, Avery Dennison’s outlook is shaped by ongoing tariff-related headwinds, cautious apparel demand, and growth initiatives in non-apparel categories.

• Muted apparel demand: Management expects continued softness in apparel and general retail, influenced by ongoing uncertainty around trade policy and inflationary pressures affecting consumer demand. CEO Deon Stander noted that “customer feedback and sentiment remains muted,” and guidance assumes low single-digit declines in apparel volumes.

• Productivity and innovation focus: Avery Dennison is relying on cost discipline, network optimization, and new product innovation—particularly within Intelligent Labels for food and logistics—to offset demand volatility and support margins. Innovation efforts include developing recyclable tags and expanding applications in perishable goods.

• Selective growth in other segments: High-value categories such as graphics, reflective films, and productivity solutions for retailers are expected to continue growing. Management highlighted the strong pipeline in food and logistics, noting that returns on recent pilot programs have exceeded customer expectations and could drive broader adoption.

Catalysts in Upcoming Quarters

Looking ahead, our analysts will closely monitor (1) whether Intelligent Labels can accelerate growth beyond apparel, particularly in food and logistics; (2) the pace of recovery in apparel and general retail demand amid ongoing trade and inflation headwinds; and (3) execution of productivity initiatives and product innovation to sustain margins. Progress on the rollout of pilot programs and customer adoption in high-value categories will be additional indicators of strategic traction.

Avery Dennison currently trades at $178.45, in line with $179.02 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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