Avery Dennison (AVY)

Adhesive manufacturing company Avery Dennison (NYSE:AVY) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 1.5% year on year to $2.22 billion. Its non-GAAP profit of $2.37 per share was 1.9% above analysts’ consensus estimates.

Company Overview

Founded as Kum Kleen Products, Avery Dennison (NYSE:AVY) is a manufacturer of adhesive materials, display graphics, and packaging products, serving various industries.

Industrial packaging companies have built competitive advantages from economies of scale that lead to advantaged purchasing and capital investments that are difficult and expensive to replicate. Recently, eco-friendly packaging and conservation are driving customers preferences and innovation. For example, plastic is not as desirable a material as it once was. Despite being integral to consumer goods ranging from beer to toothpaste to laundry detergent, these companies are still at the whim of the macro, especially consumer health and consumer willingness to spend.

Competitors in the packaging industry include Crown Holdings (NYSE:CCK), Ardagh Group (NYSE:ARD), and Silgan Holdings (NASDAQ:SLGN).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Avery Dennison’s sales grew at a tepid 5.4% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Avery Dennison’s recent performance shows its demand has slowed as its annualized revenue growth of 2.9% over the last two years was below its five-year trend.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Avery Dennison’s organic revenue averaged 2.5% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Avery Dennison grew its revenue by 1.5% year on year, and its $2.22 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.4% over the next 12 months, similar to its two-year rate. While this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Avery Dennison’s gross margin is slightly below the average industrials company, giving it less room to invest in areas such as research and development. As you can see below, it averaged a 27.8% gross margin over the last five years. That means Avery Dennison paid its suppliers a lot of money ($72.20 for every $100 in revenue) to run its business.

This quarter, Avery Dennison’s gross profit margin was 28.7%, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Avery Dennison’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 11.7% over the last five years. This profitability was solid for an industrials business and shows it’s an efficient company that manages its expenses well. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Avery Dennison’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. We like to see margin expansion, but we’re still happy with Avery Dennison’s performance considering most Industrial Packaging companies saw their margins plummet.

This quarter, Avery Dennison generated an operating margin profit margin of 11.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Avery Dennison’s EPS grew at an unimpressive 7.6% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

Diving into the nuances of Avery Dennison’s earnings can give us a better understanding of its performance. A five-year view shows that Avery Dennison has repurchased its stock, shrinking its share count by 7.1%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Avery Dennison, its two-year annual EPS growth of 13.4% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, Avery Dennison reported adjusted EPS of $2.37, up from $2.33 in the same quarter last year. This print beat analysts’ estimates by 1.9%. Over the next 12 months, Wall Street expects Avery Dennison’s full-year EPS of $9.47 to grow 7.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Avery Dennison has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.5% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that Avery Dennison’s margin dropped by 2.5 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Avery Dennison’s free cash flow clocked in at $268.5 million in Q3, equivalent to a 12.1% margin. This result was good as its margin was 2.1 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Avery Dennison hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 16%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Avery Dennison’s ROIC decreased by 5 percentage points annually over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Avery Dennison reported $536.3 million of cash and $3.78 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.44 billion of EBITDA over the last 12 months, we view Avery Dennison’s 2.2× net-debt-to-EBITDA ratio as safe. We also see its $60.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Avery Dennison beat analysts’ EPS expectations this quarter. On the other hand, its EPS guidance for next quarter missed and its organic revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $164 immediately following the results.

Updated: December 4, 2025 at 10:38 PM EST

Before deciding whether to buy Avery Dennison or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Avery Dennison’s business quality ultimately falls short of our standards. To begin with, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its market-beating ROIC suggests it has been a well-managed company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its organic revenue growth has disappointed.

Avery Dennison’s P/E ratio based on the next 12 months is 17.3x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $202.36 on the company (compared to the current share price of $174.95).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.