Avery Dennison (AVY)

Adhesive manufacturing company Avery Dennison (NYSE:AVY) missed Wall Street’s revenue expectations in Q4 CY2025 as sales rose 3.9% year on year to $2.27 billion. Its non-GAAP profit of $2.45 per share was 2.9% 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).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Avery Dennison grew its sales at a tepid 4.9% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. 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 better understand 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 2.4% 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’s revenue grew by 3.9% year on year to $2.27 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

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. Said differently, Avery Dennison had to pay a chunky $72.20 to its suppliers for every $100 in revenue.

Avery Dennison’s gross profit margin came in at 28.7% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, 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 remained more or less the same, averaging 11.5% 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.

Looking at 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 10.6%, down 1.4 percentage points year on year. Since Avery Dennison’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

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 unimpressive 6.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

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

Avery Dennison’s two-year annual EPS growth of 10% was good and topped its 2.9% two-year revenue growth.

We can take a deeper look into Avery Dennison’s earnings to better understand the drivers of its performance. A two-year view shows that Avery Dennison has repurchased its stock, shrinking its share count by 4.4%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q4, Avery Dennison reported adjusted EPS of $2.45, up from $2.38 in the same quarter last year. This print beat analysts’ estimates by 2.9%. Over the next 12 months, Wall Street expects Avery Dennison’s full-year EPS of $9.54 to grow 6.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and 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 7.7% 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 1.5 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Avery Dennison’s free cash flow clocked in at $301.2 million in Q4, equivalent to a 13.3% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared 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 15.5%, 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 3.3 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 $202.8 million of cash and $3.73 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 $1.45 billion of EBITDA over the last 12 months, we view Avery Dennison’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $61 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 good to see Avery Dennison provide EPS guidance for next quarter that slightly beat analysts’ expectations. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue slightly missed. Overall, this quarter was mixed. Still the stock traded up 4.4% to $195.08 immediately after reporting.

Updated: February 4, 2026 at 7:01 AM EST

When considering an investment in Avery Dennison, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Avery Dennison isn’t a terrible business, but it doesn’t pass our bar. For starters, 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 organic revenue growth has disappointed. On top of that, its diminishing returns show management's prior bets haven't worked out.

Avery Dennison’s P/E ratio based on the next 12 months is 18.3x. 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 $206.80 on the company (compared to the current share price of $195.08).