Avery Dennison Corporation (NYSE:AVY) Q3 2024 Earnings Call Transcript

Avery Dennison Corporation (NYSE:AVY) Q3 2024 Earnings Call Transcript October 23, 2024

Operator: Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. [Operator Instructions] Welcome to Avery Dennison’s Earnings Conference Call for the Third Quarter Ended on September 28th, 2024. This call is being recorded and will be available for replay after 4:00 PM Eastern Time today and until midnight Eastern Time, October 30th, 2024. To access the replay, please dial 1-800-770-2030 or 1-609-800-9909 for international callers. The conference ID number is 5855706. I’d now like to turn the call over to John Eble, Avery Dennison’s Vice President of Finance and Investor Relations. Please go ahead, sir.

John Eble: Thank you, Jeremy. 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 A-4 to A-9 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.

Deon Stander: Thanks, John, and hello, everyone. We delivered another strong quarter with earnings per share of $2.33, above our expectations and are raising our full year guidance. We now expect earnings of $9.35 to $9.50 per share for the year and are targeting roughly 20% earnings growth compared to prior year. Both Materials Group and Solutions Group delivered strong bottom line growth in the quarter, and in Intelligent Labels, we are delivering another year of strong top line growth and continue to see significant opportunity ahead. Materials Group continued to demonstrate its resilience in the third quarter, again delivering solid volume growth and strong margins. In North America and Asia, volume increased compared to prior year and sequentially, in line with expectations.

In Europe, volume was slightly below expectations, increasing compared to prior year and down sequentially, largely driven by normal volume seasonality. Broadly, macro retail volumes remained soft relative to long-term trends, particularly in developed regions as the cumulative effects of inflation continue to earn consumers and we do not anticipate this will change in the near term. Solutions Group delivered strong sales growth and margins in the third quarter, driven by strong growth in the base and continued growth in high value solutions. Overall, the apparel category was strong after normalizing mid-year as we expected, providing further evidence that retailers and brands are largely through destocking. In the quarter, we were able to largely overcome some interruptions in the apparel industry due to the unrest in Bangladesh, a key apparel sourcing country.

Within high value solutions, strong growth in apparel and general retail categories was partially offset by logistics and drugstore channel softness. Focusing on our Intelligent Labels platform, as we continue to connect billions of physical items with digital identities, I have high conviction in delivering against our target of roughly 15% plus sales growth over the long term. This multi-decade growth opportunity will be driven by continued adoption in apparel and accelerate adoption in new segments such as food, logistics, and general retail, a key focus for us in the near term. As the market leader, we are extremely well-positioned to capitalize on this opportunity. In food, we announced a strategic collaboration with Kroger focused on building a better customer and associate experience through RFID technology.

This collaboration makes item-level digital identification possible, enabling more frequent and accurate inventory information to maximize freshness, reduce waste, and improve the associate experience. The collaboration will begin in the bakery department across the Kroger network. This is the first grocer moving to rollout for item-level RFID tagging and represents a significant step forward for our Intelligent Labels business and the industry overall in a very large addressable market with significant opportunity for growth in the years to come. Turning to results, enterprise-wide Intelligent Labels sales were up mid-teens year-to-date. As we shared during our Investor Day, new customer rollouts will be uneven, particularly due to the pace of deployment as well as by comparison to initial volume builds for new program adoption in prior years.

In this context, we now expect double-digit growth for the full year on softer logistics volume. Overall, the ability of our solutions to help address industry challenges such as labor efficiency, waste, transparency, and consumer connection in very large-volume categories like logistics, retail, and food is increasingly resonating with customers. Key pilots and rollouts are delivering significant value and compelling proof points for broader segment adoption. We continue to invest to capture the significant opportunity ahead as we grow the size of the overall industry, further advancing our leadership position at the intersection of the physical and digital. Stepping back, the underlying fundamentals of our business are strong. We’re exposed to diverse and growing markets with clear catalysts for long-term growth.

We are industry leaders in our primary businesses with clear competitive advantages in scale and innovation and we have a clear set of strategies that we continue to evolve over time and are key to our success over the long term and across a wide range of business cycles. We remain confident that our strategies, along with our team’s ability to execute in dynamic environments will enable us to continue to generate superior value-creation through a balance of GDP plus growth and top-quartile returns over the long term. In summary, we delivered another strong quarter and raised our guidance for the year to deliver nearly 20% earnings growth in 2024. While we are increasing our outlook for the year, the environment remains uncertain and warrants some degree of caution.

We remain confident in delivering 10% earnings growth across a range of scenarios over the cycle recently laid out in our Investor Day. I want to thank our entire team for their continued resilience, focus on excellence, and commitment to addressing the challenges at hand. And with that, I’ll hand the call over to Greg.

Gregory Lovins: Thanks, Deon, and hello, everybody. In the third quarter, we delivered adjusted earnings per share of $2.33, up 9% compared to prior year, driven largely by benefits from higher volume and productivity. Compared to prior year, sales were up 5% ex-currency and 4% on an organic basis, as higher volume was partially offset by deflation-related price reductions. Adjusted EBITDA margin was strong at 16.4% in the quarter, up 40 basis points compared to prior year with strong margins in both segments. And we continued to generate strong free cash flow with $420 million generated through the first three quarter, up nearly $50 million compared to prior year. Our balance sheet remains strong with a net debt to adjusted EBITDA ratio at quarter-end of 2.1, which includes paying down $300 million of debt, which matured in August.

We continue to execute our disciplined capital allocation strategy, including investing in organic growth and acquisitions while continuing to return cash to shareholders. In the first nine months of the year, we returned $315 million to shareholders through the combination of share repurchases and dividends. And in the third quarter, we repurchased 300,000 shares and distributed $71 million in dividends. Turning to segment results for the quarter. Materials Group sales were up 4% ex-currency and on an organic basis compared to prior year, driven by mid-single-digit volume growth, partially offset by deflation-related price reductions. Looking at Label Materials organic volume trends versus prior year in the quarter, North America was up mid-to-high single-digits.

Europe was up mid-single digits, including the impact of the slight volume pull-forward into Q2 that we noted last quarter. Asia-Pacific was up low-single digits and Latin America was up mid-to-high single-digits. High-value segment growth was also strong with graphics and reflective sales up mid-single-digits organically and Tapes up low-single digits organically with particular strength in industrial categories. Materials Group delivered a strong adjusted EBITDA margin of 17% in the third quarter, moderating sequentially as expected due to typical volume seasonality and comparable to prior year as higher volume and benefits from productivity were offset by higher employee related costs and the net impact of pricing and raw material cost. Regarding raw material costs in the third quarter, globally, we saw low single-digit inflation sequentially as expected.

The increase was driven by higher paper prices, primarily in Europe. We’ve addressed the cost increases through a combination of product reengineering and pricing actions as we discussed last quarter. As we move through the third quarter, paper prices began to stabilize. Overall, we expect our raw material cost to be fairly stable in the fourth quarter. Shifting now to Solutions Group, sales were up 6% on an organic basis and 7% ex-currency. With base solutions up mid-teens as apparel volume remained normalized and high-value solutions were up low-single digits. Within high-value solutions, strong growth in Intelligent Labels, apparel, and general retail categories was partially offset by logistics and softer volumes in our drugstore channel in Vestcom.

As Deon mentioned, enterprise-wide Intelligent Label sales grew mid-teens through the first three quarters of the year as apparel volume normalizes and new categories adopt. While the third quarter was below our expectations, we delivered more than 20% growth in apparel and general retail categories, which was partially offset by logistics, largely due to prior year customer inventory builds and a customer transition that reduced some RFID parcel volume in the third quarter. That transition is now largely complete. Despite uneven growth this year, as Deon mentioned, the Kroger collaboration we announced yesterday is another proof point of our industry leadership and builds on our confidence in delivering on the significant opportunity ahead.

Solutions Group delivered strong adjusted EBITDA margin of 17.9%, up 110 basis points sequentially and 150 basis points compared to prior year, driven by benefits from higher volume and productivity, partially offset by higher employee-related costs and investments. Now shifting to our outlook for 2024. We have raised our guidance for adjusted earnings per share to be between $9.35 and $9.50, with the midpoint reflecting nearly 20% growth versus prior year. As you’ll recall, our outlook includes our four key drivers of earnings growth in 2024, which are on track. The normalization of label volumes early in the year, the normalization of apparel volume midyear, strong growth in Intelligent Labels as apparel rebounds and new programs rollout, and ongoing productivity actions.

We’ve outlined additional key contributing factors to our guidance on Slide 12 of our supplemental presentation materials. In particular, in focusing on the changes from July, we estimate 4.5% to 5% organic sales growth, now targeting the high-end of our previous outlook. For the year, we continue to expect high single-digit volume growth, partially offset by deflation-related price reductions. We expect incremental savings from restructuring actions of more than $55 million, up $5 million from our previous outlook, some of which was delivered in Q3. And we now anticipate a headwind from currency translation of roughly $5 million in operating income for the year, slightly better than our previous outlook for both the third and fourth quarters.

And we continue to target roughly 100% adjusted free cash flow conversion. In summary, we delivered another strong quarter. Increased our outlook for earnings growth, remain confident in our ability to continue to deliver exceptional value through our strategies for long-term profitable growth and disciplined capital allocation. And now, we’ll open up the call for your questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Ghansham Panjabi from Baird. Please go ahead.

Ghansham Panjabi: Hello, everyone. I hope you’re doing well.

Deon Stander: Hi, Ghansham.

Ghansham Panjabi: I guess — Yes, thanks, Dean. So I guess first off on the Materials segment and as it relates to the volume rebound in 2024, is that starting to plateau in your opinion? In other words, you had a rebound following the destocking impact last year and now you have a weaker consumer as an offset, which is why you’re still below sort of 2022 levels. And then in Intelligent Labels specific to logistics, is the lower than forecast volume dynamic in 2024 specific to just end market conditions or just tough comps? What is the issue there?

Gregory Lovins: Yes, Ghansham. So on the material side, I think when we look at the quarter overall, I think we see as we would have expected, materials volumes, particularly in Europe, sequentially slowing a little bit from seasonality. I guess if you compare over a couple year period, especially compared to 2022, price is a pretty significant factor there. So from that perspective, we’re in the midst of raising prices in 2022. Now we’ve seen some deflation over the last year and prices have come down. So that’s part of it when you look at the sales number overall. From a volume perspective, I don’t think we’ve seen much change in the overall trends. I would say or as Deon mentioned in the earlier comments, Materials Europe was a little bit lighter than we expected and we do continue to see a little bit softer retail volumes in Europe overall. But otherwise, not much change from a trend perspective on volumes and materials.

Deon Stander: Yes, Ghansham, just let me reiterate. I think the broader macro-environment still remains uncertain. We’re seeing that even in feedback from our customers. We talked about particularly in Europe, our customers in Europe and their end-customers are reflecting kind of the more muted sentiment we’re seeing over there and that’s confirmed by macro retail volume data that we see in Europe. To your IL question specifically, maybe — just maybe take a step back. I think we’ve laid out what we believe is the significant growth opportunity that lies ahead of us the last time we met at their Investor Day. And our conviction in delivering on that 15% plus growth target over the time, I think the Kroger announcement is just yet another inflection point I think that is going to really resonate in the industry and provide a catalyst for further growth.

And think about our apparel business having adopted multiple proof points, we now have another proof point visible in logistics and we are now in the process of having a visible proof point in food as well. And I think that is going to be a key part of how we unlock the future. I will also say our focus in the near term is very much on driving adoption, making sure that we’re not only creating the demand but also executing that demand. And some of these intercom — quarterly movements are less focused on as we move forward. I will say in logistics specifically, the biggest variance that we saw was really down to prior year inventory customer builds year-on-year and then also this customer transition that impacted some RFID volume overall. And this is, I think is — which has now largely been completed as Greg indicated and that is I think, a first year annualization challenge less an ongoing issue moving forward.

Operator: Our next question comes from the line of John McNulty from BMO Capital. Please go ahead.

John McNulty: Yes, good morning. Thanks for taking my questions. So I guess on the new Kroger opportunity, can you help us to think about the scale of that? I know fresh bakery is kind of the first launch and then there’s more to come. But I guess, can you help us to think about what that might mean in terms of either tag volumes or growth for you, how that phases in, how quickly that may phase in? And then I guess also tied to that, I know there’s a lot of discussion right now in the QSR markets around food safety. I guess, can you speak to the pilot programs that you’re seeing and if you see the potential for some meaningful launches in QSR as we go into 2025.

Deon Stander: Yes, John, thanks for the question. Let me spend a bit of time on the Kroger piece first and I’ll switch to QSR. And I think as I said, our conviction in our long-term growth target of delivering on that 15% plus is really anchored on making sure that we drive adoption. So we — as we said, apparel driving that and continue to drive IL logistics. And I think for the first time, the Kroger announcement puts an exclamation point under the fact that the technology has ubiquity and has value in driving demonstrable return on investments for food customers, particularly at the grocery level as well. I also just would characterize that that food segment, as you recall, is the largest of all the segments that we’ve been talking about.

It is of an order of magnitude higher than apparel, which is only 40% penetrated, roughly in the 200 million units — 1 billion unit side. So it presents a significant upside for the industry and for us as the market leaders. The work that we’re doing with Kroger will start in the bakery channel and then rollout across the estate for over time. And our expectation, John, is that in time ultimately, we’ll expand beyond bakery into areas such as protein and fresh produce. I think equally, this is going to take time and the rollout will be adoption. We’ve seen this in apparel, we’ve seen this in logistics and I don’t doubt that we’re going to also see this in food. But I think there’s a couple of things that stand out for me on the Kroger piece.

One is the value of the partnership that we’ve had with them over a long period, which actually was founded on the relationship that we have with our Vestcom business in Kroger over many years as well. And secondly, the fact that we’ve been able to bring to them an approach that both drives at an innovation level, but also at an execution level. We don’t comment, as you know, on the size of programs at specific customer levels, but this rollout will help us deliver on that 15% plus growth target as we discussed in our Investor Day, John. On the QSR specifically, I think we already have a couple of QSRs in rollout, most notably one, where their focus has been on food safety, which is what drove it originally. And in that instance, we’re actually leveraging — in the digital identification and physical items to go back to source, so that you have transparency of where something was produced and its freshness through the cycle.

We have a number of other QSRs in similar discussions and I do think the more recent FSMA regulations that have come out in the United States will act as an accelerant for food safety drive and by definition, I think they’re going to lean into RFID as an enabling technology, which then will continue to be to our benefit as the market leader.

Operator: Our next question comes from the line of George Staphos from Bank of America. Please go ahead.

George Staphos: Hi, everyone. Good morning.

Gregory Lovins: Good morning, George.

Deon Stander: Hey, George.

George Staphos: Thanks for taking my question. Yes. So I wanted to continue on the Intelligent Label question progress. I know you can’t talk about size of program and all that relative to a customer. Can you talk to us though about how many stores this initially is launched at within Kroger over whatever number of months or quarters you can speak to? And tell us a little bit more underneath the hood what’s going on in terms of how Kroger needs to implement this front-end, back-end and how you’re involved. So any color there would be helpful. And then secondly, what’s going on with Vestcom in terms of the slowdown there and what’s that mean in terms of your earnings, recognizing that you are still — you raised guidance for the year? And then I’ll come back in the next round.

Deon Stander: Sure, George. On the Kroger specific rollout, so the focus is initially on bakery and we’re going to ramp over time as we go through the next number of quarters to ultimately be close to kind of full estate, which I think is in the order of sort of 2,800 stores. And the way that we’re doing that, George, is because bakery in some ways is largely contained within one department, within one supply-chain, it’s a much easier piece to execute. Most of the execution will actually happen in the bakery and the store, not in the specific supply chain itself, although there will be elements as we progress that will further go back down the supply chain. That makes it more manageable and the approach that we’re going to take work in collaboration with Kroger is to do this on a phased rollout as we go across the next six or so quarters as well.

In terms of Vestcom, the issue that we saw in the third quarter was really related to a couple of points. So one was the general drugstore channel softness that I’m sure all of you are aware of had an impact on some of our volume in the third quarter. One of our customers is just now starting to emerge from bankruptcy, which is a positive sign, will return to growth as we move forward. And actually, we’ll see overall Vestcom growth in the fourth quarter actually again. The second element, which is a little bit more — a little different is that because of the hurricane we saw, particularly affecting Southeastern states, part of the emergency declaration that happens is they have a price freeze on all food items. And so that meant there were less price ticket changes during that period.

Again, that will be ameliorated as we move into the fourth quarter. Yes, and Vestcom remains a very significant high-value segment business for us with outsized and above segment margins and good growth prospects even in the drugstore channel where we’re engaged with a very large white space opportunity and hoping to have some progress as we go through 2025 in that regard, George.

Operator: Our next question comes from the line of Michael Roxland from Truist Securities. Please go ahead.

Michael Roxland: Thanks, Deon, Greg, John for taking my questions. Two questions from me. In 3Q, can you comment how much Intelligent Labels actually grew? You mentioned strong growth in apparel and general retail. You mentioned the weakness in logistics and the drugstore channel. So just wondering how much it actually grew in the quarter? And the second question is just Deon, following-up on your comments on the drugstore channel, it sounds like based on the last question that it’s temporary in terms of weakness, but could it be something more permanent? You’re seeing a lot of drugstores, Walgreens and others announce store closures. So do you think there’s been a shift in drugstores in terms of fewer drugstores that could have some type of more permanent impact on Vestcom?

Deon Stander: So Mike, in the third quarter, I think as you heard Greg say, we moved our — given the softness in logistics we called out, we moved our year-to-date performance from the half year, we were mid-to-high teens to mid-teens for the year-to-date after nine months. As it relates to the drugstores, there’s certainly a temporary piece of this volume recovery as it relates to, for example, hurricane pricing and some of the recovery of these, some of our drugstore channel partners as they come through their own challenges. But I don’t necessarily see this as a long-term permanent shift. In fact, we actually see significant white space opportunity. We don’t deal with all the drugstore players and we have in discussion with a very large one, talking about how we can deliver some of the solutions we have.

If you think about what we do in our Vestcom business is really to provide two elements. One is a productivity solution for labor efficiency in store and labor is still the biggest denominated quotient concern that retailers generally have. And the second is a media solution that brings consumer connection at the point of purchase of the shelf. Much of what Vestcom does, which is largely data composition engine and takes in multiple feeds of data and then sends that out in terms of a label format is patented ourselves. And so we have a uniquely advantaged solution in that regard. And I do think as retail continues to have some degree of challenge when it comes to labor and attracting consumers into the store, our solutions will increasingly resonate in that regard.

Operator: Our next question comes from the line of Jeff Zekauskas from JP Morgan. Please go ahead.

Jeff Zekauskas: Thanks very much. So in the Solutions Group, base solutions grew 15%. So that’s 6% growth for the whole segment. And if Intelligent Labels is now growing 15% and it used to grow 17% or 18%, that means that Intelligent Labels grew 10%. So Vestcom and Embellishments then must have shrunk 10%. Is that correct? And then secondly, Kroger’s baked goods are about $5 billion. And I don’t know their average baked good is somewhere between $2.50 and $5, so that’s a billion tags or maybe 2 billion tags at $0.03, so that’s $30 million to $60 million a year. Is this the order of magnitude we’re talking about?

Gregory Lovins: Yes. On your first question, Jeff, so when you look at overall in high-value segments, as we talked about, we’re up low-single digits ex-currency in the quarter. So Deon already talked about Vestcom. Vestcom was down given the drugstore channel impacts that we talked about. Embelex was also a little soft, partially impacted by that Bangladesh unrest as well as in performance apparel a little bit softer this quarter as well. Intelligent Labels growth, if you recall, is in both segments. So we continue to drive growth in the Solutions segment as we also continue to leverage our strong converter base within our Materials segment to grow really in the general retail categories that we’ve talked about growing very well and that shows up in the materials business. So it’s split between both our growth and IL split between both solutions and materials. So overall, that’s largely the framework for how we get to where we were in overall high-value segment.

Deon Stander: And Jeff on Kroger, you’re right that bakery is the smallest part of the kind of what I would call periphery perishable items, but it’s one that has significant impact for the retailer in this regard. A lot of what gets done in terms of understanding one items are fresh and highly perishable in that regard are manually done. And so you have both an impact on kind of labor effectiveness as well as the associate experience in the store. And this is why we know that the technology can impact both of those, both improve the associate experience, which is critical for retailers. And the second piece is also making sure that you’re able to drive efficiency and by definition, reduce waste as well. We’re not going to comment on the size of the exact program as we roll out over time, Jeff.

But I will say that this is going to be for us a very important tipping point for the industry. It’s the first visible marker that food and grocery will go. And when people realize the scale of the ubiquity of that benefit, like in apparel, as we now starting to see logistics, I think it will act as a catalyst for further acceleration and adoption.

Operator: Our next question comes from the line of Josh Spector from UBS. Please go ahead.

Josh Spector: Yes, hi, good morning. I guess maybe more generally within RFID and specifically the food opportunity. Can you just talk about the margins or kind of the drop-through that you expect on that market, assuming you’re not going to comment on Kroger specifically? I guess, does that come in line with what your average RFID book of business is today? Is it below until you get scale or is there some reason why it’s higher? Any framing there would be helpful. Thanks.

Gregory Lovins: Yes, sure, Josh. I’d start with saying that for our — as we said for a long time, our Intelligent Labels platform is above segment margin overall. And whether the product is ultimately in apparel or in logistics or now in these different food categories, while the ASP may vary depending on the complexity of the product or the breadth of the solution, we typically see relatively consistent margins across all of these and their above-average segment margin.

Operator: Our next question comes from the line of Matthew Roberts from Raymond James. Please go ahead.

Matthew Roberts: Hey, good morning, everybody, and thank you for the time. Maybe if I can touch a little more — can you hear me?

Deon Stander: Yes.

Matthew Roberts: Okay, thanks. Maybe if I could touch a little bit more on the food opportunity and see what Kroger is trying to look or learn from the bakery. I know you said it’s six or so quarters for the full rollout, but once it is in place, are there any milestones or timelines put in place before potentially rolling it out to other departments? And also while I appreciate, it is still early and planning with more to come in a couple of months for 2025 and in September, you laid out your long-term financial framework. But should we expect 2025 to be within that framework of the 5% topline and 10% EPS growth or are there any unique items or timing from 2024 that could impact that bridge? Thanks for taking the questions.

Deon Stander: Yes. In terms of the broader food opportunity, Matthew, let me to reiterate again, it’s the largest category that we see for IL adoption overall. The order of magnitude comparison is 200 billion units of same food in the addressable market relative to 65 or 70 for logistics relative to 45 or so for apparel. So there’s an enormous runway multi-decade opportunity ahead of us in that regard. As it relates to the timing of the rollout, we’re not necessarily sharing all the details on this, we’re focused on bakery first, and over the estate, will rollout over a period of time. Based on those results, the — our anticipation is that we will then move to categories like proteins and leafy greens as we move forward. And again, that will take time.

And I will stress this again, there will be uneven rollouts as we go through this period, both from a timing and an adoption phase across — we’ve seen this across apparel. We’ve now seen this slightly in logistics and I don’t doubt we’re going to see this in food as well. Our focus, I’ll reiterate this, our focus is ensuring we’re driving adoption, creating the demand and then executing and fulfilling that demand.

Gregory Lovins: Yes, on the 2025 question, Matt, as you said at Investor Day, we laid out our financial framework for the future where we talked about growing 10% adjusted earnings per share growth annually. I would say right now, our early view of 2025 is that we’d be following that algorithm that we laid out a month or so ago. When we look at the drivers of that, obviously, Intelligent Labels growth, we’ve talked about being a driver of that. In apparel, we’ll have a more normalized first half of the year next year. And our margins in the second half of this year in solutions are better in our first half. So that should give us a little bit of first half benefit as well. And then continue to have more normalized growth in materials. But as Deon laid out earlier, a bit uncertain retail environment there. So we remain cautious a little bit on that front. But those are the main drivers that help get us towards delivering that target we laid out back in September.

Operator: Our next question comes from the line of Anthony Pettinari from Citi. Please go ahead.

Anthony Pettinari: Good morning. Do you think your label volumes tracked kind of in line with the industry in 3Q or given it may be difficult to track market-share quarter-to-quarter, maybe you could just speak year-to-date? And then I guess maybe same question for Intelligent Labels, do you think you’re kind of growing in line or stronger or a little bit weaker than the market? And then just to reiterate, like the weaker 3Q IL activity, is that just completely kind of like timing of projects and the comp or is there anything from like an industry perspective that you’d point to that impacted volumes in the quarter?

Deon Stander: Yes. I think the high-level, yes, our label volumes are largely in line with industry and we continue to hold if not slightly maintain and expand share in our label business generally across the world. As it relates to our IL business, there is some volatility because of this logistics significant rollout last year and some softness this year, but generally, we’re performing — given that we’re creating the market, we’re performing in line with the market overall. And we expect over the long term to continue to be the majority share provider and slightly expand our share as we move through that given some of the competitive advantages we have as well. As it relates to the third quarter, your question was, was is it related to just those specific comps and the transition piece? Yes, it was. There was nothing else that really had a fundamental impact on what we saw from a third quarter IL performance.

Operato: Our next question comes from the line of Michael Leithead from Barclays. Please go ahead.

Michael Leithead: Great. Thank you. Good morning, guys. Can you speak to the pricing in both of your businesses sequentially in the third quarter? Are you seeing incremental price give back or are prices generally flat at current levels? And relatedly, it sounds like European materials, input cost is up, price and demand perhaps a bit softer. Is there any change in terms of how you guys need to approach the European market going into 2025 or is it just sort of transitory weakness given where we are in the cycle at this point?

Gregory Lovins: Yes, thanks, Mike, for the question. So overall, when we look from Q2 to Q3, we saw low single-digit inflation, really, I guess, very low single-digit inflation sequentially after a little bit of sequential inflation in the second quarter as well. And as you said, that’s really largely in paper in Europe is where we’re seeing that. And we talked about last quarter that we were announcing and implementing some pricing actions. So we also had some low-single-digit price benefit sequentially from Q2 to Q3 as we’re managing that. So the net impact was pretty negligible in the quarter overall. So I think when we look forward, we continue to see a relatively stable environment overall from a materials perspective. So we don’t see that shifting too much in the very near term, difficult to call more on an ongoing basis though.

Operator: Mr. Eble, there are no further questions at this time. I will now turn it back over to you for closing remarks.

John Eble: Thanks, Jeremy. As you all know, our overarching objective is to deliver GDP plus growth and top-quartile returns, which is a recipe for superior EVA and value creation over the long term. We are confident that the consistent execution of our strategies will enable us to achieve our long-term objectives. This now concludes our Q3 earnings call. Thank you all for joining today.

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 lines.