Avery Dennison : Q3 Financial Review & Analysis

Third Quarter 2023

Financial Review and Analysis

(preliminary, unaudited)

October 25, 2023

Supplemental Presentation Materials

Unless otherwise indicated, comparisons are to the same period in the prior year.

1

Safe Harbor Statement

Certain statements contained in this document are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties. We believe that the most significant risk factors that could affect our financial performance in the near term include: (i) the impacts to underlying demand for our products from global economic conditions, political uncertainty, and changes in environmental standards and governmental regulations; (ii) the cost and availability of raw materials; (iii) competitors' actions, including pricing, expansion in key markets, and product offerings; (iv) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; (v) foreign currency fluctuations; and (vi) the execution and integration of acquisitions.

Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to, risks and uncertainties related to the following:

• International Operations - worldwide and local economic and market conditions; changes in political conditions, including those related to China, the Russian invasion of Ukraine and the Israel-Hamas war; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets
• Our Business - fluctuations in demand affecting sales to customers; fluctuations in the cost and availability of raw materials and energy; changes in our markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; the impact of competitive products and pricing; execution and integration of acquisitions; selling prices; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; collection of receivables from customers; and our environmental, social and governance practices
• Income Taxes - fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets
• Information Technology - disruptions in information technology systems or data security breaches, including cyber-attacks or other intrusions to network security; and successful installation of new or upgraded information technology systems
• Human Capital - recruitment and retention of employees and collective labor arrangements
• Our Indebtedness - credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest rates; volatility of financial markets; and compliance with our debt covenants
• Ownership of Our Stock - potential significant variability of our stock price and amounts of future dividends and share repurchases
• Legal and Regulatory Matters - protection and infringement of intellectual property; impact of legal and regulatory proceedings, including with respect to environmental, anti-corruption, health and safety, and trade compliance
• Other Financial Matters - fluctuations in pension costs and goodwill impairment

For a more detailed discussion of these factors, see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Form 10-K, filed with the Securities and Exchange Commission on February 22, 2023, and subsequent quarterly reports on Form 10-Q.

The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

2

Use of Non-GAAP Financial Measures

This presentation contains certain non-GAAP financial measures as defined by SEC rules. We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement the presentation of our financial results prepared in accordance with GAAP. Based on feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessments of our performance and operating trends, as well as liquidity. In accordance with Regulations G and S-K, reconciliations of non-GAAP financial measures from the most directly comparable GAAP financial measures, including limitations associated with these non-GAAP financial measures, are provided in the appendix to this document and/or the financial schedules accompanying the earnings news release for the quarter (see Attachments A-4 through A-9 to news release dated October 25, 2023).

Our non-GAAP financial measures exclude the impact of certain events, activities or strategic decisions. The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it more difficult to assess our underlying performance in a single period. By excluding the accounting effects, positive or negative, of certain items (e.g., restructuring charges, outcomes of certain legal proceedings, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension obligations, gains or losses on sales of certain assets, gains or losses on venture investments and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency or timing.

We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for quarters and year-to-date periods, as applicable. We use the non-GAAP financial measures described below in this presentation.

• Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation and the reclassification of sales between segments, and, where applicable, an extra week in our fiscal year and the calendar shift resulting from the extra week in the prior fiscal year, and currency adjustment for transitional reporting of highly inflationary economies. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations.
• Organic sales change refers to sales change ex. currency, excluding the estimated impact of acquisitions and product line divestitures.

We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the ongoing activities of our businesses and enhance their ability to evaluate our results from period to period.

We believe that the following measures assist investors in understanding our core operating trends and comparing our results with those of our competitors.

• Adjusted operating income refers to net income adjusted for taxes; other expense (income), net; interest expense; and other non-operating expense (income), net.
• Adjusted EBITDA refers to adjusted operating income before depreciation and amortization.
• Adjusted operating margin refers to adjusted operating income as a percentage of net sales.
• Adjusted EBITDA margin refers to adjusted EBITDA as a percentage of net sales.
• Adjusted tax rate refers to the projected full-year GAAP tax rate, adjusted to exclude certain unusual or infrequent events that are expected to significantly impact that rate, such as effects of certain discrete tax planning actions, impacts related to enactments of comprehensive tax law changes, and other items.
• Adjusted net income refers to income before taxes, tax-effected at the adjusted tax rate, and adjusted for tax-effected restructuring charges and other items.
• Adjusted net income per common share, assuming dilution (adjusted EPS) refers to adjusted net income divided by the weighted average number of common shares outstanding, assuming dilution.
• Adjusted free cash flow (adjusted FCF) refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Adjusted free cash flow is also adjusted for, where applicable, certain acquisition-related transaction costs. We believe that adjusted free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.

This document has been furnished (not filed) on Form 8-K with the SEC and may be found on our website at www.investors.averydennison.com.

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

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Q3 adj. EPS in line with expectations, continuing to increase sequentially; expect further improvement in Q4

Label Materials volume continues to improve

• Impact of inventory destocking continues to moderate
• Demand increased in emerging regions; remained soft in developed regions
• Margins improved sequentially and remain strong

Apparel Solutions volume improved sequentially

• Following mixed back-to-school season, retailer and brand sentiment remains muted

Adoption of Intelligent Labels continues to accelerate

• Non-apparelcategories, particularly Logistics and Food, up ~75% compared to prior year
• Expect low-to-mid teens growth in 2023, on slower apparel recovery
• Expect 20%+ growth in the coming years as new categories adopt and apparel rebounds

Expect Q4 adj. EPS to improve sequentially; guidance range of $2.10 to $2.25

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

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Third quarter 2023 review

Reported EPS of $1.71

Adj. EPS (non-GAAP) of $2.10, up 9% sequentially

Net sales of $2.1 bil.

• Sales change ex. currency (non-GAAP) down 10%
• Organic sales change (non-GAAP) down 11%

Reported operating income of $207 mil.

• Adj. EBITDA (non-GAAP) of $328 mil., up 7% sequentially QTD adj. free cash flow (non-GAAP) of $310 mil., up $170 mil. Maintaining strong balance sheet; deploying capital in disciplined manner

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

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U.S. Consumer Sentiment

U.S. Business Sentiment (Mfg. PMI)

Avg. AVY Label Volume (NA + Europe)

Source: University of Michigan

Apparel Imports (US + Europe)

Source: Otexa and Eurostat

Source: Institute for Supply Management

U.S. Apparel Inventory to Sales Ratio

2010-2019 Avg.

Source: U.S. Census Bureau

• Economic indicators conflicting
• Business and consumer sentiment remains relatively low
• Label volume continues to improve as destocking wanes
• Apparel imports below demand levels for 4 consecutive quarters
• U.S. apparel inventory level below pre-pandemic average

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

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Intelligent Labels

Organic Sales

Change % vs. PY

$0.8B

~20%

Org. Sales

CAGR

$0.25B

• Q3 2023 organic sales up ~10%
• • Non-apparelcategories, particularly Logistics and Food, up ~75% compared to prior year
  • Apparel down; retailer and brand sentiment remains muted
• Anticipate ~40% growth in Q4
• Expect 20%+ growth in coming years as new categories adopt and apparel rebounds

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

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Quarterly sales trend analysis

	3Q22	4Q22	1Q23	2Q23	3Q23
Reported Sales Change	12%	(7%)	(12%)	(11%)	(9%)

Organic Sales Change(1)	16%	(1%)	(9%)	(10%)	(11%)
Acquisitions/Divestitures	4%	0%	0%	1%	1%
Sales Change Ex. Currency(1),(2)	19%	(1%)	(9%)	(10%)	(10%)
Currency Translation	(7%)	(6%)	(3%)	(1%)	1%
Reported Sales Change(2)	12%	(7%)	(12%)	(11%)	(9%)

1. Non-GAAP
2. Totals may not sum due to rounding

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

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Quarterly sales trend analysis (cont.)

		Organic Sales Change
	3Q22	4Q22	1Q23	2Q23	3Q23
Materials Group	19%	2%	(9%)	(12%)	(16%)
Solutions Group	7%	(8%)	(9%)	(7%)	1%
Total Company	16%	(1%)	(9%)	(10%)	(11%)

Total Company

Sales Change Ex. Currency

19%

(1%)

(9%)

(10%)

(10%)

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

9

Sales change and operating margin comparison

			Q3 Sales Change
	Reported		Ex. Currency		Organic
Materials Group	(14%)		(16%)		(16%)
Solutions Group	3%		5%		1%
Total Company	(9%)		(10%)		(11%)

Reported

Operating Margin

	3Q23	3Q22
Materials Group	12.1%	13.9%
Solutions Group	7.9%	12.2%
Total Company	9.9%	12.6%

Adj. EBITDA Margin

(non-GAAP)

3Q23	3Q22
16.4%	15.5%
16.4%	18.9%
15.6%	15.6%

October 25, 2023

Preliminary & unaudited, Q3 2023 financial review and analysis

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