Ladies and gentlemen, welcome to Avery Dennison's Earnings Conference Call for the fourth quarter, ended on December 31st, 2025. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a Q&A section. At that time, if you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and enter the queue. As a reminder, this webcast is being recorded and will be available for replay on the Avery Dennison Investor Relations website.

I'd now like to turn the call over to William Gilchrist, Avery Dennison's Vice President of investor relations please go ahead sir thank you Miriam and welcome to Avery Denison's fourth quarter and full year 2025 earnings conference call please note that throughout today's discussion we'll be making references to non-gap financial measures the non-gap measures that we use are defined qualified and reconciled from gap on schedules a4 to a8 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 our Deion Stander president chief executive officer and Greg Levins senior vice president and chief financial officer I'll now turn the call over to Dion thanks Gillian hello everyone we delivered solid full year 2025 results with adjusted EPS of $9.53 and 707 million dollars of adjusted free cash flow a performance that once again underscores the durability of our franchise and our ability to activate multiple levers

across a range of macro scenarios while ongoing trade policy changes and softer to consumer sentiment have been headwinds for our business, we successfully leveraged our productivity playbook to maintain an adjusted EBITDA margin of 16.4%. Our results demonstrate the resilience of our model as we remain focused on driving outsized growth in high value categories, accelerating innovation to advance our differentiation, delivering productivity to protect base margins and allocating capital effectively. Turning to the fourth quarter segment results, in materials group, reported sales increased 5%. While sales were down slightly on an organic basis, we saw low single-digit volume and mixed growth that was more than offset by deflation-related price reductions. We are continuing to advance our strategic shift towards high-value categories, which which now represents 38% of the segment's portfolio, a figure we expect to expand with a full year of Taylor adhesives. Within this segment, Intelligent Labels delivered high single-digit growth, underscoring its role as an important growth engine, while performance materials grew mid-single digits and graphics and reflectives grew low single digits. High-value categories helped balance our base categories, which were down low single digits in the quarter, one-time benefits in the prior year, fourth quarter, which our team worked diligently, roughly one and a half percent, to lead our portfolio, and are representing 60% high-value categories, provided a necessary offset to our base solutions, group high-value practice, and a favorable high-value mix, allowed us to deliver an adjusting high employee-related cost to our enterprise-wide intelligent label platform. Sales grew mid-single digits compared to prior year, in line with our key growth market segments and a partial recovery in apparel, which grew low single digits this quarter. General retail sales have been impacted by tariff policy changes, high teams growth in Q4, looking ahead to the second half and the first half as we lap a stronger first quarter 2025, which was largely unaffected by to navigate the grocery rollout with Walmart, being in the back half of 2020, expanding pilots with new customers. Following a year of outsized growth, we're pivoting back to the enterprise level. While I am pleased with our ability to protect margins and earnings in this environment, I am not satisfied with our organic revenue. While much of this is due to cyclical challenges, we are taking decisive action. As you can see on slide 10, our high-value categories, which have secular tailwinds, remain a key enabler over the past six years and expanding to roughly 45% of our sales in 2025, expanding these solutions to new customers and end markets, accelerating innovation active categories and the base categories our opportunity with existing customers and to grow into new markets advancing this through examples such as our intelligent labels fresh solutions for food traceability platform and the growth of Embellix's custom studio fan zones to drive in venue fan engagement similarly in materials group smart materials to accelerate intelligent label adoption throughout the channel additionally to To further enhance our differentiation, we're also expanding our digital capabilities, additional operational productivity and fixed-cost innovation, strengthen our service and quality, and provide more data-driven solutions that our customers require to address their fundamental challenges. Stepping back, as you can see on slide nine, executing on all our key strategies with proven business resilience enables us to deliver GDP plus growth and top quartile returns across investing in innovation to drive growth in our high-value categories, and pushing ourselves to lead at the intersection of the physical and digital, we will continue to relentlessly focus on productivity to strengthen our market-leading positions in both our business. We will also continue to be disciplined in capital allocation to deliver returns and improve our portfolio. Finally, I'm pleased to report that we achieved our 2025 sustainability objectives, which we laid out in 2020. These include reducing our energy intensity and enabling more sustainable products and solutions for our customers. Similarly, we're making good progress towards our 2030 sustainability. We're moving to the outlook for 2026. In line with our recent practice of providing a quarterly outlook, we will be continuing this approach for the foreseeable economic indicators remain largely consistent with 2025 levels. We are not planning for any macroeconomic tailwinds in the near term. Our performance will instead be driven by the levers within our control, scaling our differentiated solutions in high-value categories, returning our base business into profitable growth, maintaining a relentless focus on productivity, and effectively deploying capital to drive earnings. In summary, we have exited a dynamic and challenging year. Not just advancing our strategic priorities underpins our confidence in returning to stronger growth and delivering top quartile returns. We are entering 2026 with the right playbook, the right team, and a path to return to growth in line with our long-term targets. I want to extend my sincere gratitude to our global team for their dedication to excellence and their unwavering focus on executing our strategies. With that, over to you, Greg.

Thanks, Dion, and hello, everybody. In the fourth quarter, we delivered solid adjusted earnings per share of $2.45, up 3% compared to prior year. Earnings growth was driven by higher volume and productivity, partially offset by higher employee-related costs and targeted growth investments. From an overall sales perspective, our business continued to be impacted by a softer consumer environment and customer uncertainty due to the impact of trade policy changes. Fourth quarter reported sales were up 3.9%, with organic sales comparable to prior year as positive volume was offset by deflation-related price reductions. As expected, we benefited from an estimated point-and-a-half impact from our shift to the Gregorian calendar at the end of the year, and one point of growth from the Taylor Adhesives acquisition. Adjusted EBITDA margin remained resilient at 16.2% in the quarter, down slightly compared to prior year. And we again generated strong adjusted free cash flow of $303 million in the quarter, bringing our full year 2025 free cash flow to $707 million with a free cash flow conversion rate of greater than 100%. And our balance sheet remained strong. with our quarter-end net debt to adjusted EBITDA ratio at 2.4. We continue to execute our disciplined capital allocation strategy. For the full year, we returned approximately $860 million to shareholders, including $572 million in buybacks and $288 million in dividends, reinforcing our commitment to delivering shareholder value while maintaining a strong balance sheet. Now, turning to segment results for the quarter, year, materials group organic sales were down approximately 1%, as low single-digit volume mix growth was more than offset by low single-digit deflation-related price reductions. Organically, high-value categories grew low single digits, while our base categories were down low single digits. Turning to regional label materials organic volume mix trends versus prior year, in developed markets, volume mix was down low single digits in North America as consumer product demand continued to impact volumes, while Europe delivered mid-single-digit growth. In emerging markets, Asia-Pacific and Latin America were both up low single digits. Our high-value categories and materials group delivered low single-digit organic growth. This growth was driven by intelligent labels, which delivered a high single-digit increase. Performance materials, which includes our performance tapes and adhesive businesses, was up mid-single digits, while graphics and reflectives were up low-single digits, and specialty and durable labels were comparable to prior year. Materials Group continued to deliver resilient margins with an adjusted EBITDA margin of 16.6% in the quarter. While this was down slightly compared to prior year, it reflects our ability to largely defend profitability through productivity efforts which nearly offset the headwinds from higher employee related cost in a lower volume growth environment regarding raw material costs including the cost of tariffs we continue to experience modest sequential raw material deflation in the fourth quarter capping year where total raw material costs declined at low single digits our teams remained agile and navigating dynamic markets mitigating tariff costs through strategic sourcing adjustments in the implementation of select pricing surcharges. Overall, including tariffs, our outlook is for relatively stable sequential material costs as we enter 2026. Shifting solutions group, sales were up 1.3% organically. High value categories perform well, up high single digits, with base solutions down mid single digits, driven by softer base apparel sales. Within high-value categories, Vescom was up more than 10%, driven by the continued benefit from new program rollouts. Imbelux was up high single digits, driven partially by World Cup sales, and Intelligent Labels sales grew low single digits on lower apparel and general retail volumes. Now, turning to enterprise-wide Intelligent Labels, sales expanded mid-single digits compared to prior year. growth was once again driven by food logistics and industrial categories which were up high teens for the quarter and now we represent approximately 30% of our total IL portfolio offsetting this strong momentum was the performance in apparel and general retail which combined were down low single digits for the quarter and these markets represent 70% of our intelligent label sales and continue to be impacted by tariff-related pressures. Solutions Group adjusted EBITDA margin was 17.8%, which was comparable to prior year, as benefits from our continued productivity efforts and higher volume were offset by higher employee-related costs and ongoing growth investments. Now, stepping back to look at our long-term financial performance, we remain focused on delivering strong results across cycles. Reflecting on our 2020 to 2025 targets, we delivered solid results despite multiple cyclical challenges by leveraging the strength of our portfolio. We successfully exceeded our top-line goals and performed well on our profitability targets, with EBITDA margin ahead of our long-term objective. However, we did fall short of our adjusted EPS target, which came in at 7% X currency, trailing our 10% target, partially due to the impact of acquisition and tangibles amortization. Additionally, ROTC, while in the top decile of our peers, finished at 15%, largely driven by the impacts of our acquisitions, including tailored adhesives, which closed in the fourth quarter of 2025. Turning to our 23 to 2028 targets, we are currently in line or ahead on most of our targets, and as Dion mentioned, our focus is to shift our organic sales growth trajectory to achieve our targets for this cycle. Now turning to our outlook, for the first quarter of 2026, we anticipate reported sales growth of 5% to 7%. Our guidance does not presume an improvement in external market conditions. This sales growth includes organic growth of 0% to 2%, approximately 4% from currency translation and approximately 1% from the Taylor Adhesives acquisition. We expect adjusted earnings per share to be in the range of $2.40 to $2.46, representing approximately 6% growth year-over-year at the midpoint. This earnings growth is driven by benefits of organic volume mixed growth and productivity actions, which more than offset headwinds from wage inflation and growth investments. And the normalization of 2025 temporary savings, including incentive compensation and a net benefit from combined currency, share count, interest, and tax. We've also outlined key contributing factors to our full year 2026 on slide 14 of our supplemental materials. We expect an approximate 25 cent EPS benefit from the combination of favorable currency and a lower share count, partially offset by higher adjusted tax rate and interest expense. We expect restructuring savings of approximately $50 million as we continue to execute our productivity playbook, and we expect a normalization of a majority of the 2025 temporary savings, which was largely related to lower incentive compensation costs. We remain committed to strong free cash flow, again targeting roughly 100% conversion with fixed an IT capital spending of approximately $260 million. And we anticipate a sequential increase in earnings throughout the year, in line with our recent historical seasonal patterns. In summary, we delivered a solid fourth quarter, achieving adjusted EPS of $2.45, which was up 3% compared to prior year, and this capped off a year where we leveraged our proven playbook to protect bottom line results. We generated over $700 million in full-year adjusted free cash flow and returned approximately $860 million to shareholders while maintaining a strong balance sheet. For the first quarter, we expect at the midpoint an improvement on organic sales and earnings as we continue to deliver actions to increase the pace of our earnings growth, and we remain well-prepared for a variety of macro scenarios, and we're positioned to execute our profitable growth and disciplined capital allocation strategies to deliver superior long-term value for our stakeholders now we'll open up the call for your questions ladies and gentlemen we will now begin the question and answer session if you would like to ask a question please raise your hand now using star one on your telephone keypad if your question has been answered and you would

like to withdraw your registration, please press the pound key. To accommodate all participants, we ask that you please limit yourself to one question and then return to the queue if you have additional questions. Please stand by as we compile the Q&A roster. Our first question comes from George Staffos, Bank of America Securities, Incorporated. Please proceed with your question.

Thanks for the details. Dan, Greg, Gilly, good to talk with you. My question will be on materials. You called out a few things that made comparisons difficult this fourth quarter versus last fourth quarter. So we appreciate that. But I was wondering if you could parse a bit further the puts and takes, the pluses and minuses, behind the 40 basis point drop in margin. It was a little bit worse than we were expecting. You know, in that regard, the higher employer-related costs, you know, we can guess what that is, but if you could provide a bit more color. And last thing, was there any impact from higher RAS in that number? I know you said there was deflation, particularly though around paper pricing and the like.

This is Greg. So I think there is, of course, a number of factors. We talked about our base volumes were a bit soft in the quarter. And when we look at every year, we have wage inflation year over year, and we need a bit of volume growth to offset that wage inflation. So when our base volumes are down, a lot of our productivity actions are going in to offset wage inflation and some of those headwinds. At the same time, we did have a little bit of small one-time items last year, nothing major but a couple items that added up to a few cents that were a headwind then year over year for us as we look at prior year Q4 24 to Q4 25. And then in addition to that, we did have the extra calendar days this year, and those were four extra calendar days that come with fixed costs for those days but pretty soft shipping days because they're the days right before New Year. So the flow through on those is typically well below our average as well. So it's a number of impacts there. Now when I look at our sequential margins from Q3 to Q4, I think it's largely in line with our historical seasonality. Historically, we do see a 60 basis point or so drop in Q3 to Q4 margins in materials, largely due to the holiday impacts as well as mix of our VI labels in the fourth quarter versus the third quarter. And then in addition to that, as I said, we had the calendar shift impacts in the quarter. So overall, pretty much in line historical seasonality from a margin perspective. And year-over-year had some one-time items in prior year that impacted the year-over-year comparison.

Your next question comes from Ganshan Punjabi, Robert W. Baird. Please proceed with your question.

Thanks, John. Good morning, guys. I guess on intelligent labels and the low single-digit growth during 2025, how are you at this point thinking about growth for 2026? And related to that, can you share your view on growth expectations for some of the other higher value categories, you know, BestCom and BellX, et cetera? And then, Dion, you know, on your decision to only give quarterly guidance for now, where do you lack specific visibility in context of a portfolio that's relatively diverse both by business and geographically? When? What would need to change for you to kind of go back to that annual guidance construct?

Yeah. Gus, let me start with the first question on IL. You know, we had less single digits than 20 growth in 2025, and we're anticipating our growth rate in 2026 to be above what we delivered in 2035. In 2025, I'd say largely the biggest impact was really on apparel and general merchandise, really tight in tariff activity that was happening. And I still fundamentally continue to believe in the significant growth opportunities this platform has. Just to restate, you know, this is a 300 billion unit plus opportunity, $8 billion plus opportunity, and we're really at the nascent stage, and what gives me that level of confidence that we're going to continue to see that growth during 2026 and beyond is the fact that we are already seeing, as you've seen, more adoption in these individual seconds. I think more apparel customers continue to adopt the technology as well as extend the use of the technology for example in loss prevention. We now have and we're working through the planning and the execution as we go to the second half of the year on the second grocery customer which I think itself will be a significant inflection point for that segment. And I think then in logistics we're going to continue to really lean into more pilots, expanded pilots with a number of our other customers and with our large customer where we drove outsized growth in 2025 largely on our execution as some of the other competitors struggled and began some share we're anticipating that large customer has also provided you know lower output for volume guidance in this year and we're in a factor that in we'll see how that goes in logistics overall as it relates to the other high value categories and let me just Again, for us, high-value categories are critical because they provide both a growth catalyst and acceleration for growth. Most of our high-value categories are typically higher growth in our base business, and they have typically a higher margin profile. So as we accelerate that portfolio mix, we're going to get natural mix accretion both on our growth and on our margin profile as well. Typically we expect, Gansham, the majority of these high-value categories to be at kind of mid-single digit plus. They vary by individual ones across materials and solutions. In Vescom and in Bellix as you are specifically, we're anticipating mid-single-digit growth, all things being equal, assuming no fundamental change in environment for those two categories as we continue to see new customers for Vescom, the rollout of their stalling software that really will enable in-store productivity for their existing customer base. And then on Bellix, while we are up against a headwind as relates to World Cup loss, I believe that depending on how the in-arena execution goes during World Cup, we could benefit from some of that as well. So we'll wait and see to how that plays out overall. To your final question around, you know, I think we continue to see a very dynamic environment, which limits our visibility really on the market side of the growth piece. I just want to remind everybody of the last five years, we've seen a number of, largely one of cyclical events negatively, pandemic, inflation, supply chain, the stock and tariff consequences. And as a short-term cycle business, it makes it having a long-term perspective during these type of events very challenging by strategies, the actions we're taking to drive growth and differentiation to deliver value creation. But I'm not planning for any macro tailwinds in 2026. And so for the foreseeable future, we're going to continue to provide updates and outlooks on a quarterly basis.

Our next question comes from John McNulty, BMO Capital Markets. Please proceed with your question.

Yeah, thanks very much for taking my question. And appreciate some of the color and the historical perspective around the high value categories. Maybe digging into that a little bit more deeply, I guess, can you help us to think about the margin differential for the high value categories versus kind of the core? And also, has that shifted or changed much as we've progressed from, say, 2019 to 2025, either gotten higher or has it contracted at all? How should we be thinking about that?

Yeah, thanks, John, for the question. I think, you know, we haven't talked specifically about margins by specific category. But in general, of course, as we talk about for a product category to be a high-value category, it's got to have higher variable margins than the rest of the portfolio. And that's a big part of our focus there is as we grow faster in these high-value spaces, it allows us to continue expanding margins as well. So typically, they are a number of points above our average, certainly above – significantly above the base categories as well. When you go back and look over the last few years, you can see our gross profit margins over the last few years have gone up a couple points, and a big part of that is this shift towards high-value categories that you can see on the slide that we laid out. In addition to the productivity actions and other things that we've been driving as well, but the shift towards more and more high-value category growth is definitely showing up in our gross profit margins as we've expanded those over the last few years.

And John, I'll just add that our high-value categories right across the business, I think really enable us to have a resilient portfolio, allows us to pull multiple levers should things I'll also say from a high-value category perspective, which you saw grow more than 6% since 2019 keen on an organic basis, really resonates with customers because we're providing differentiation at the point that these examples include, you know, what we do with ITRI, not just to bind things together, but for example, to provide additional noise and sound vibration dampening. So they provide utility beyond the simple application in our Intelligent Labels platform where we brought new innovation on our team, which enables recyclability, not just historically on, for example, PPE for PE, but HDPE, now glass, and other packaging as well. So for us, a final constituent component of our high-value categories is the need for content that continues to bolster margins. Typically, when you bring a new product that's highly differentiated, we're able to extract more value from that because we create more value. And that's been a very big part of the focus over the last couple of years, and it will be so moving forward as well.

Our next question comes from Jeff Secaukes, J.P. Morgan. Please proceed with your question.

Thanks very much, a two-part question. Since you signed your agreement with, have you had more inquiries from other sellers of grocery items? And secondly, on slide 14, you talk about the majority of 2025 temporary savings, including incentive comp, being a headwind. How large is that headwind?

Yeah, Jeff, you know, I think the Walmart announcement with our partnership, I think, has added an additional catalyst to interest and inquiry within our pipeline. We've always known that bringing a digital identity to a physical object, particularly for example in the grocery space, will be able to allow you to reduce waste because you're able to manage your death before expiry date in a much better way, reduce labor efficiency or reduce labor and increase efficiency that goes with it, and finally also provide a better consumer experience. At the end of the day, freshness is one of the biggest drivers in the net promoter score in the grocery environment. The fresher items are, the more they're available, typically gross is too bad than they're growing. That's the basis of Walmart's expansion with us on that. Since we've seen that announcement, our pipeline has actually grown with a number of other grosses and or both on the bakery and protein side continuing to approach us. This is both domestic in Europe as well as in – sorry, domestic in the United States as well as in Europe. And so I'm confident that as we go through this year, we're going to see more pilots and trials through that, not anticipating another rollout during the start of this – during this year, but certainly setting the framework and the groundwork for us to be able to do so as we move forward.

Yeah, and on your second question, Jeff, those temporary savings, again, which is largely an incentive compensation impact year-over-year, obviously incentive comp in 2025, as we performed below our original expectations, was a tailwind in 2025 and will be a headwind in 2026. That is, on an order of magnitude basis, probably pretty similar to the size of the restructuring actions, that $50 million that I highlighted there. Now on top of that restructuring, that isn't the only productivity we're driving. We continue to drive ongoing productivity all the time in terms of ELS savings, looking at reducing scrap, be more efficient in our operations, Dion touched on digital investments to continue to get more efficient in our G&A type of functions as well. And then in prior year, we talked about in 2025 having some network inefficiencies related to some of the tariff shifts of production in parts of our portfolio as well. So we would expect other productivity actions on top of that restructuring to help give us a benefit in 2026 versus 25.

Our next question comes from Josh Spector from UBS. Please proceed with your question.

Hi, good morning. I wanted to ask on just the apparel market in general. I think the declines that you saw in the fourth quarter were more than we expected, and as you show in your appendix, you know, the sellout from apparel has been semi-resilient. Your volumes have been down. I guess how are you thinking the trajectory from here? I guess our view is there's probably a tough comp in 1Q but then easier comps in 2Q, but you have a better ear to the ground on how, you know, apparel producers are going to be producing and if that's going to be a tailwind or not at this point.

Yeah, Josh, let me just spend a bit of time just digging into that. At the high level, I'd still say there's a high degree of tariff uncertainty. So while largely tariff rates are assumed to be in place, as you've seen, I think everybody has seen, that can pretty dramatically change depending on what the administration decides to do with the broader tariff policy. And that can have an impact at any one point in time until all these tariffs are actually formally ratified. That said, as we went into the fourth quarter, we anticipated to see some of the low single digit apparel-based volumes. We actually saw greater than that, around about 7% decline. I think a couple of factors played into that. I remember saying last time on this call that what we've seen is a change in the way apparel retailers have been managing their supply chains, given this volatility and uncertainty. Historically, apparel retailers would typically place a season's orders 60% in advance and and typically chase 40. As this concern around how much tariff policy would impact end retail prices and the likely impact on consumer demand, they were starting to have less forward-placing and chasing more. Our anticipation as we ended the third quarter, given what we saw during that – sequentially during the quarter was that that volume would slightly continue to do that. As we know now, it was a case of I think some of that volume in Q3 was in anticipation of the holiday season, a slight stock up, but then they didn't chase as much volume as they went into the fourth quarter. I think focusing, what we've heard from our customers, focusing much more on protecting margins on overall lower volumes, so not as much price discounting. The growth that you saw in retail is largely price related, it's not necessarily unit And that's also underpinned, if you look at one of the attaching schedules we have, if you look at the imagery sales ratios, for example, in the United States, they're one of the lowest points. And I would anticipate seeing because we laugh again, we need to watch apparel and the price impacts that they've had to put up on them.

I think it's going to be a watch and see plays out, given updates as we get to the end of Next question comes from Matt Roberts from Raymond James. Please proceed with your question.

Hey, good morning, Dion, Greg, and Gilly. If I could try to dig just a bit deeper into some of the non-apparel intelligent labels category. First, on general retailing in 2025, I believe there were some positives and compliance rollouts at a major customer. Is that compliance enforcement coming back in 2026, or are you expecting any incremental volumes from that customer with further category rollouts? And then on logistics, again, I know you talked to the major customer in their revenue outlooks and puts and takes there, but any benefits in them rolling out automation to further facilities or are you fully deployed there? And the pilots you mentioned in logistics, is that new pilots or expanding pilots that have already been in place? Thanks for taking the questions.

Sure, Matt. Let me go through those sequentially. So in general retail, we saw general retail impacted last year as we called out quite significantly by really the tariff environment. Most general merchandise was orientated out of China and the surrounding areas and so there was quite a drop off in demand at least from retailers for that product as they were thinking through the supply chains. The second piece in this is because there was such difficulty in that, you know, we We do sense that some of the compliance that was in those categories is probably held back a bit to make sure that they could work through the supply chain issues. All things being equal, that should return and that should be partly a tailwind for us in that regard as we look forward. Again, that's with the caveat that we don't see any other changes on tariffs as we move I think in terms of logistics, you know, we've seen the benefit that has come from automating effectively their last mile performance centers, and we're actually fully automated across those over here. Now, what we're in discussion with that particular customer around is how do they extend that to some of their international operations as we work through that during this year. And then the secondary piece is, is there other opportunity as they think about moving to what we call the first mile, the shipper side of it as well. In terms of the other pilots and trials, we're engaged in discussions that have been piloting and trialing with almost this year as non-fulfillment centers to a broader range and also looking at different use cases of highly valuable goods as well. So we'll keep you all updated on that, our anticipation of those pilots will expand as we go through the year.

Our next question comes from Anthony Paginari from Citigroup. Please proceed with your question.

Good morning. Good morning. And, you know, understanding, hey, understanding you're not giving full year guidance, is there a way to think about the quarterly cadence of the timing of the 50 million restructuring benefits throughout the year? And then, I guess, as well, the roll-off of the temporary benefit headwind that Jeff asked about. And then just, I guess, while I'm at it, you know, you talked about Walmart sales benefiting really in the second half of the year. Should we think of that as like a step up from 3Q to 4Q with kind of a stronger exit rate into 27, or is there anything you can kind of say about, you know, the cadence of that rollout?

So, I think restructuring a good chunk of that, about two-thirds of that, would be carryover projects we executed at some point during 2025 or at least kicked off near the end of the year in 2025. So I would expect from that perspective to be somewhat balanced across the year on that restructuring benefit as we have carryover savings in the first part or first few quarters of the year and then new programs kicking in as we move through the remainder of the So overall, largely balanced across the quarters. From a headwind perspective, I think when you look at incentive comp, you know, we're really starting to see bigger impacts on that, I would say, in the second quarter and beyond. There's a bit of a headwind in the first quarter, but I think that picks up a little bit as we go into the middle quarters of the year.

And Anthony, on the Walmart question specifically, recall we said that the rollout, if it took place over the next couple years, 26 and 27, would be worth, you know, for us somewhere between low double digits to – sorry, high single digits to low double digits in value for us based on our 2025 sale. Our working assumption has always been that we would start this roughly in the third quarter, It would ramp up in the fourth quarter and then continue accelerating during 2027 as you go through both the departments, the system in Delhi, as well as geographically rolling out through the stores. And that's still our current working assumption.

Our next question comes from Mike Roxlin of Truist Securities. Please proceed with your question.

Thank you, Deion, Greg, Gilly for taking my questions. Yeah, you know, in your comments, you mentioned not being happy with your organic growth and that you intend to drive better growth, especially in the high-value categories. Can you share what you started to do or what you're looking to do earlier this year to drive that growth and what type of incremental growth you're expecting in 2026 from higher growth in the high-value categories? And then just following up quickly on the apparel and general retail comments that you made about your confidence in getting – in that accelerating. What are your customers telling you about their plans for 2026, and is it a matter of new adoption continuing to increase, or is it more related to existing customers extending their use?

Thank you. Let me sit back and cover all those in the mic. Yeah, from our, you know, I'm not happy with the way our organic growth trajectory has been over the last couple of years. I know that we can, and we've demonstrated this repeatedly, managed through any environment and we've demonstrated our ability to manage and deliver margin and earnings in that regard, but we fundamentally need to make sure that we're going to continue to significantly outperform the market, and that's our focus as we've gone through the back end of last year into this year. And I touched on really four elements, I think that, sorry, three elements that will really deliver on that. The first is, clearly our high-value categories, when they are able to solve customer issues, have an ability to accelerate growth. They typically deliver higher growth rates and, as Greg said, at higher margins. And we're focused on making sure that a broader range of new customers understand the value they can bring. Whether it's in our tapes business, getting new tapes distributed in end customers. Whether it's in apparel getting new loss prevention customers. Whether it's in our materials business benefiting from our clean plate portfolio. Our focus there is generating new customers and then also identifying new segments that we can move the technology and food is just one example of that that we've done during the back end of last year and moving forward. So there's a focus on new customer acquisition for high value categories. The second area for me is actually a more important one and be less visible as we, you know, let's say this near term, but certainly more visible as we go longer term, which is accelerating our innovation outcomes. So this is not just having more new products and solution, we're commercializing them And in that regard, I listed a whole number of those, whether they are around our IL solutions, our digital solutions, materials group, our ability to leverage our material science capability and our digital identification capability with the insights that we have through the supply chain, whether it's at a retailer, at manufacturer, at converter, allows us to ultimately be able to really design more innovation at a quicker rate. And then the third element, which I touched on, was, in addition, is can we leverage the progress we made in our own digital journey and the more automation we put into the business that we've had over the last year or so on? I see those actually being able that we could then ultimately express in different ways. For example, drive more automation in some of our manual finishing that we currently have, across automate finishing, automate packaging, a small example of that, be using AI and that we're able to use. And then the third one really is we've actually started to use a lot more AI to shorten some of the actual innovation cycles. I'll give you a real example of that. It historically has taken us anywhere from eight to ten weeks to design a new inlay in intelligent labels. With a partner, a proprietary AI model, it takes all of our learnings around the physics of designing inlay, and now we're able to reduce that cycle down to roughly two weeks. That allows us to produce new products and new solutions much quicker than our previous capacity have the ability to do. And then finally, I think Greg touched on this as well, we're certainly taking all the learnings we've seen both on automation and increasing on AI to how do we actually leverage and automate some of the more manual tasks across our SG&A that our business. We've got multiple examples. So your second question around apparel and general retail, you know, the way I think about that overall is that we continue to see new apparel customers, so early stages of a role, not just for inventory accuracy but also for loss prevention, the work that we did with the purple Inditex group and in addition I continue to see a pipeline where we get new apparel customers continuing wanting to use so overall those rollouts as I mentioned earlier one will fall apart as we go through the year and run through the year as well next question comes from

the line of John Dunnigan from Jefferies please proceed for all the thanks for all the information thus far I want to start off with just looking at your your inventory levels, and you touched on some of your customers in response to Josh's question and how they're managing their inventories, but I noticed that your inventory to sales ratios are elevated compared to where they were at pre-pandemic levels. So with the modest demand, at least starting off here in 2026, is there an ability to drive inventories lower to better match to the current demand environment? And then just kind of building on that, you know, I noticed that you had stepped up your CapEx to about 260 here in 2026. Just wondering if that's more tied to growth projects, maybe some delayed maintenance since you kind of pulled it down a little bit in 25 or cost savings initiatives, just, you know, how that money is being spent would be helpful.

Sure. Thanks for the question. So, if I look at our, you know, our inventory terms over the last few years, they've been fairly steady, at least at the end of the year with where we've been. I think part of what's happening across the businesses, we do have a little bit of a mixed impact as we grow faster in the high value categories, where typically those categories are a bit more working capital intensive. And some are in emerging markets where we have a little bit higher working capital percents as well than we do in the U.S. businesses, for instance. And so typically we're seeing a little bit of upward pressure on working capital driven by the growth in those areas. Now we're driving a lot of productivity elsewhere to help offset that as we've gone across the years. And that's been a focus and we saw that even from the middle of this year, I think we talked about our working capital being a bit high and driving that down by the end of the year and I think we did a good job delivering that. So we've got some kind of mixed pressure that we're offsetting through a number of initiatives I think when we look at CapEx, as you said, in 2025, it was 200 million. I will say there's another about 30 million of cloud technology-related investments that shows up in the operating section of the cash flow statement, so it's about 230 million when you add that to the rest of the CapEx for 2025. We pulled that down from our original guidance for 2025 as we saw the softer volumes. So, we're increasing that a bit in 2026, still I think below where it was a couple years prior to that, but continuing to drive productivity initiatives as well as continue to prepare for capacity for the future as well.

Our next question comes from George Staffos from Bank of America Securities, Inc. Please proceed with your question.

Dion, you mentioned, I think in answering Mike's question, in trying to accelerate innovation that you're trying to spend more, if you will, capital at acquiring customers and getting them to try the products. Obviously, there's a mixed benefit from HVC, but do you see the customer acquisition cost being at such a rate over the next couple of years where it sort of dilutes the impact of HVC on your margin and mix on a going forward basis? How should we think about that as a way to parse that at all? Separate question, just in general, paper supply, any concerns on that? for this year relative to the materials business as capacity has been coming out of the market or you feel relatively comfortable with your supply position for 2026. Thanks and good luck in the year.

Thanks, George. Yeah, just on the sort of the customer acquisition cost, I don't anticipate and not expecting any increase in customer acquisition cost as we move forward. We already have go-to-market teams prepared and ready and I could argue that they've been somewhat underutilized as we went through the last year relative to volume. So as we step up in some of the learnings that we've taken, they've helped sharpen our mechanisms for customer acquisition, shorten the cycles for both proving our benefits, shorten the cycles for how we position and print. And then on the back of that, we continue to leverage a little bit of automation to help improve that as well, George. So I'm not anticipating an increase in customer acquisition cost moving forward. Should have no real impact on margins. Second piece is to pay for supply. supply, we've continued to make progress in making sure, following that significant supply chain disruption that we had a couple of years ago, that we are as appropriately balanced from a risk perspective in terms of paper supply overall. And so we have made sure that our supply, particularly as related to paper glassine and price stock, we have multiple sources that we can use, largely geographically centered but not exclusively, and we continue to make sure that what we've done in that regard with our procurement team, which we've put a lot of focus over the last couple of years, is making sure we've driven from somewhat transactional approach to the smaller supply to much more strategic, where we now have much more certainty about the capacity we have available to us that we can call on as we need as well, George.

Thank you very much.

Our final question today comes from the line of John McNulty from BMO Capital Markets. Please proceed with your question.

Yeah, thanks for taking my follow-up. In the past, it seems historically that pricing was pretty much used to offset raw material-related inflation. It seems like right now your employee costs are kind of a new level of inflation that we really haven't seen before. And I know in the past you've largely tried to offset that with efficiency. Do we get to a point if the inflation around employee cost continues the way that it has where you start trying to work that through as part of your pricing act as well? And how should we think about that in 2026?

Yeah, thanks, John. So to your point, typically our pricing is following our raw material input cost. And obviously, as we've talked about, as we've seen some deflation in 2025, we've had price down to go with that, largely in sync with the deflation that we've seen And really, we're continuing, or I guess I should say, is we've also talked about with our material reengineering. In a period where we have an inflationary period, we use that to help offset the inflation in addition to price. In a deflationary period, we're typically looking at that productivity from material re-engineering to help offset things like wage inflation as an example so I think we look at that material re-engineering is a bucket that helps over a cycle especially in a flatter or more deflationary period to help offset some of those costs like wage inflation that come into the business Mr. Gilchrist there are no further questions at this time I will now turn the call back to you for any closing remarks thanks Miriam to wrap up we navigated dynamic 2025 deliver solid results for the fourth quarter of a full year our focus

and execution on our strategic priorities drives our confidence in returning to stronger growth and underscores our ability to deliver a serious superior value across the cycle thank you all for joining today this now concludes the call ladies and gentlemen that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.