Earnings Call: Q1 2021

Apr 28, 2021

Ladies and gentlemen, thank you for standing by. During this presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. Welcome to Avery Dennison's Earnings Conference Call for the First Quarter Ended April 3, 2021. This call is being recorded and will be available for replay from noon Pacific Time today through midnight Pacific Time, May 1. To access the replay, please dial 8006 3,3804or1-four zero two 9,779,140 for international callers. The conference ID number is to 1,000,000,000,000,000,000 I'd now like to turn the call over to John Eble, Avery Dennison's Head of Investor Relations. Please go ahead, sir. Thank you, Discussion, we'll be making references to non GAAP financial measures. The non GAAP measures that we use are defined, qualified and reconciled with GAAP On schedules A-four to A-eight of the financial statements accompanying today's earnings release. We remind you that will 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 Mitch Butier, Chairman, President and Chief Executive Officer and Greg Lovins, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Mitch. Thanks, John, and good day, everyone. We are off to a strong start to the year with revenue up 11%, EPS up 45%, both well above expectations and strong free cash flow. The favorable results were driven by improving and broad based volume and productivity gains across the portfolio as all three of our operating segments delivered strong sales growth and significant margin expansion. We experienced strong demand as many economies emerge from the depth The recession amidst rising confidence. This combined with both the structural and temporary productivity initiatives we've implemented drove a strong quarter. Now while we are pleased with the results, our strong performance comes at a time of continued uncertainty given the global health crisis and constraints within supply chains. The current environment further reinforces our determination to remain vigilant in protecting the health and well-being of our team and agile to ensure we continue to meet our customers' needs. While the rate of COVID-nineteen infections declined in a number of countries, including the U. S. And optimism increases as vaccines roll out, much of Continental Europe has been in lockdown and other countries such as India and Brazil have experienced Significant rises in infection rates. Fortunately, the rate of new cases among the team remains relatively stable. In addition to the effects of the pandemic, natural disasters such as the Texas winter storm and other factors, the microchip shortage being an example, are constricting supply chains even further, affecting our end markets and adding to inflationary pressures. Despite these supply chain constraints, we've been able to deliver record volumes as our team has done a great job at leveraging our global network And scale to ensure we continue to meet customers' needs. Now a quick update by business. Label and Graphic Materials posted strong top line growth for the quarter as demand for consumer packaged goods and e commerce trends continued to drive strong volume in Our Label and Packaging Materials business, while our Graphic and Reflective Solutions business rebounded faster than expected. LGM's margin was strong in the quarter, Ahead of expectations actually as the flow through from higher volume, including strength in high value categories, coupled with productivity gains enabled Significant margin expansion. Retail Branding and Information Solutions delivered strong sales growth in the quarter, Driven by both high value product categories, particularly RFID and the core apparel business. The strong top line was driven by retailers and brands Gearing up for a rebound in demand and to a lesser extent easier comps. Enterprise wide, intelligent label sales were up 40% ex Currency and up 20% on an organic basis. As expected, the strong growth of our RFID business was primarily driven by apparel, While outside of apparel, we continue to see strong momentum building for new applications. As we outlined in detail at our Investor Day last month, we have a tremendous amount of opportunity in this space in apparel, food, logistics and more. And as you also heard, our focus is not only to be the world's leading RFID supplier. We are creating a broader intelligent labels platform To this end, we recently announced 2 digital initiatives. 1, the acquisition of a small software startup, Zipium And the other being the launch of a connected product cloud platform startup, atma. Io. As for the bottom line, RBIS delivered significant margin expansion in the quarter driven by higher volume and productivity initiatives. Given the margin and growth profile of this business, we will continue to ramp up our pace of investments in this segment, particularly in Intelligent Labels With an accelerated pace throughout the remainder of the year. Turning to Industrial and Healthcare Materials. The segment delivered strong sales growth in the quarter, driven by a significant rebound in demand for industrial products, while we continue to make good progress towards achieving the long term margin target for this business. We continue to invest in this segment, including the acquisition of JDC Solutions, A small manufacturer of specialty tapes for use in a variety of high value industrial applications that we closed in March. Now given our strong performance in Q1 and our revised expectations for the rest of the year, we have raised our full year outlook And now anticipate top line growth of 9% to 11% ex currency and earnings per share of $8.40 to $8.80 We are pleased with the continued progress we're making towards the success of all of our stakeholders. Our consistent performance reflects the strength of our markets, Our industry leading positions, the strategic foundations we've laid and our agile and talented team. We remain focused on our 5 key strategies: driving outsized growth in high value categories growing profitably in our base businesses Focusing relentlessly on productivity, effectively allocating capital and leading in an environmentally and socially responsible manner. We are confident that the consistent execution of these strategies will enable us to achieve our long term goals, including consistently delivering GDP plus growth and top quartile returns. And once again, I want to thank our entire team for their tireless efforts to keep one another safe while continuing to deliver for our customers during this challenging period, bringing a whole new level Agility and dedication to address the unique challenges at hand. Over to you, Greg. Thanks, Mitch, and hello, everybody. As Mitch said, we delivered a strong start to the year with adjusted earnings per share of $2.40 above our expectations. This roughly $0.75 increase over prior year was driven by strong growth and productivity gains, as well as an estimated $0.25 benefit from the combined impact from the calendar shift and pre buys. Sales grew ex currency 11% 9% on an organic basis, driven by strong broad based demand As well as a modest benefit from easier comps as the pandemic began to impact our results in Q1 of last year. Given the strong revenue combined with productivity gains, we delivered adjusted EBITDA margin of 16.5% and adjusted operating margin of 13.9%, both up roughly 2 points. And we realized $19,000,000 of net restructuring savings in the quarter, the majority of which represented carryover from projects we had pulled forward into 2020. And we continue to expect roughly $70,000,000 from net restructuring savings this year. As Mitch mentioned, to begin the year, supply chains have remained tight and input costs have been increasing. As a result, raw material and freight inflation were above our initial expectations and we have continued to see costs rise as we enter the Q2. We now expect mid to high single digit inflation for the year with variations by region and product category. As we typically do, we will address this through a combination of both product reengineering and pricing. We've announced price increases in most of our businesses in regions across the world. And given the pricing announcements, some customers accelerated orders into the Q1 ahead of pricing adjustments. We estimate the pre buy benefit to Q1 was roughly 2 points of revenue growth and we anticipate this impact will largely come out of Q2. We generated $182,000,000 free cash flow in the quarter, up substantially compared to last year, primarily driven by improved working capital and higher operating results. Working capital as a percent of sales improved compared to prior year, driven by better receivables and inventory turns. And our balance sheet remains strong with a net debt to adjusted EBITDA ratio at quarter end of 1.6. Our current leverage position gives us ample capacity to continue executing our disciplined capital allocation strategy, including investing in organic growth and acquisitions, while continuing to return cash to shareholders. Last week, we announced that the Board approved a 10% increase to our quarterly dividend rate, following the 7% increase last year. And in the quarter, we paid $52,000,000 in dividends and repurchased roughly 300,000 shares at an aggregate cost of $56,000,000 And as you know, we increased our pace of inorganic investments last year and we've continued on that front. Deploying $31,000,000 for acquisitions in the Q1, including JDC Solutions and Zippy Young. Now turning to segment results for the quarter. Label and Graphic Materials sales were up 8.4%, excluding currency, and 7.6% on an organic basis, driven by higher volume. Sales were up roughly 7% organically in label and packaging materials, with strong volume growth in both the high value product categories and the base business, partially offset by carryover price reductions. Graphics and Reflective sales continued to rebound nicely and were up 9% organically. Looking at the segment's organic sales growth in the quarter by region, North America and Western Europe sales were up low single digits, while emerging markets overall were up mid teens. The Asia Pacific region grew roughly 20%, led by growth in China and India. Although the recent surge in COVID-nineteen cases in India has heightened uncertainty in the region. And Latin America grew mid teens with particular LGM's adjusted operating margin increased 150 basis points to 16.3 percent as the benefits from strong volume, including the benefit of the calendar shift in pre buy and productivity more than offset higher employee related costs And the net impact of pricing and raw material cost. Shifting now to Retail Branding and Information Solutions. RBIS sales were up 15% ex currency and 9.3% on an organic basis, as growth was strong in both the high value categories And the base business. The core apparel business was up mid to high single digits as retailers and brands prepare for the stronger demand, with particular strength in the value and performance channels. And as Mitch indicated, excluding currency, intelligent label sales were up 40% and up 20% on an organic basis. Adjusted operating margin for the segment increased 4.40 basis points to 12 as the benefits from higher volume, lower receivables reserves and productivity more than offset higher employee related costs and growth investments. Turning to the Industrial and Healthcare Materials segment, Sales increased 18.8%, excluding currency, and 16.3% on an organic basis, reflecting strong growth in industrial categories, particularly in automotive applications, which more than offset a modest decline in healthcare. Adjusted operating margin increased 190 basis points to 12.3%. There's a benefit from higher volume more than offset higher employee related costs. Now shifting to our outlook for 2021, while there is a continued high level of uncertainty from the pandemic and tight supply chains, We have raised our guidance for adjusted earnings per share to be between $8.40 $8.80 a $0.75 increase to the midpoint of the range. The increase reflects the strong performance in Q1 As well as an increased outlook for organic sales growth for the balance of the year. We now anticipate 9% to 11%, excluding currency sales growth for the full year, above our previous expectation, driven by both the higher volume outlook and the impact of higher prices. We've outlined some of the other key contributing factors to this guidance on Slide 12 of our supplemental presentation materials. In particular, the extra week in the Q4 of 2020 will be a headwind of a little more than one point to reported sales growth and a roughly $0.15 headwind to EPS to 2021. We estimate Q1 benefited by roughly $0.15 based on the shift in the calendar and anticipate then a roughly $0.30 headwind in Q4. As noted earlier, we estimate the pre buy benefit to Q1 was roughly $0.10 of EPS, which will come out of future quarters, mainly Q2. And the anticipated tailwind from currency translation is roughly 2 points to sales growth and $25,000,000 in operating income for the full year based on recent rates. And the majority of our 2020 temporary cost reductions have come back in at this point. The exception is our belt tightening costs, travel expenses, for example, which have remained low to start the year with many of our employees still in lockdown or working from home. And we expect these costs to come back in later through 2021. And finally, given the increased outlook for earnings and working capital productivity, We're now targeting to generate over $675,000,000 of free cash flow this year. So in summary, We delivered another strong quarter in a challenging environment, and we remain on track to deliver on our long term objectives To achieve GDP plus growth and top quartile returns on capital, which together drive sustained growth in EVA. And now we'll open up the call for your questions. Thank Please lift your handset before entering your request. To accommodate all participants, we ask that you please limit yourself Our first question comes from the line of Ghansham Panjabi with Robert W. Baird and Company. Please proceed with your question. Thank you, ma'am. Hi, everybody. Hope everybody is doing well. Good afternoon. So first off, congrats on 1Q. I guess, as we kind of think out ahead, it's still pretty early in the year. Your core sales guidance is now 9% of the midpoint versus 5% Previously, clearly, you have a pre buy in 1Q that may come at the expense of 2Q. You have tough comps in some businesses. And then you have the India and Brazil and other parts of the world buyers flare up. So I guess in context of that and what you've called out in the past in terms Sort of limited visibility on a go forward basis for your businesses being that they're short cycle. I guess what gives you confidence to be able to raise organic sales Guidance this early in the year. And also in terms of share gains, are you embedding any sort of future share gains in that? Thanks, Ghansham. This is Greg. So yes, just maybe to give you a view of how we're thinking about it. When we look at the full year, Obviously, in the Q1, we delivered strong volume growth of about 9%, which adds a little more than 2 points to the full year growth rate. We then look at the second and third quarters, which obviously Q2 last year was the trough in the pandemic for us and we still had a decline of about 4 points In the Q3 last year as well. So just looking at if we can recover the declines that we saw in the businesses most impacted last year by the pandemic In Q2 and Q3, those quarters would add another 4 or 4.5 points of growth to the full year growth rate. So between Q1 and just recovering the Declines that we had last year in Q2 and Q3 will get us to about 7 points. And then in addition to that, you'd be looking at the impact The incremental pricing actions that we've talked about given the inflationary environment this year. So that's kind of how we've thought about getting to that 8 to 10 point range. The strong growth we had in the Q1 in addition to recovering the volume declines that we had last year plus the incremental impact of the pricing. Okay. And then for my follow-up question in terms of April, are you seeing the deceleration as it relates to the prebuyer that you called out? And then also for the LGM LPM, I should say, advantage markets from last year, so the packaged food, etcetera, that benefited last year, are you seeing the comparisons Change dramatically associated with that or you still see elevated demand? Yes. So overall, April, the trends early on broad based are continuing what we saw in Q1. The impact of the pre buy from the pricing Now we're just starting to see visibility of that to our orders because when we receive the orders, we continue to ship into early April. So we do Are starting to see as far as order trends that impact a bit from the pre buy. But overall, right now, we're seeing some of the trends continuing In the Q2 of what we saw in Q1, which further reinforces the guidance that Greg just spoke to. So as far as if you look at it from the market You asked about share a little bit because we have a little bit of share movement each quarter. We believe share in Q1 was Comparable to what we had in North America last couple of years, over the average. And in Europe, we captured some of the share we We had ceded a year or so ago within the quarter as well. Now all that data is not finalized. That's based on our estimates. So the market overall for mature regions actually we believe moderated in Q1, And that's off of a very tough comp of Q1 of last year, Ghansham. So that's kind of already baked in a little bit of that tough comps, if you will, from last year as far as the growth Now conversely, what you're seeing in emerging markets, as we said, those are up significantly, within LGM. So China was pretty soft Q1 of last year and was soft relatively throughout much of the year and we saw a big strong Performance here in Q1 and would expect as that economy continues to rebound, we continue to see good strong momentum on volumes and so forth within that business. Thanks Thank you. Our next question comes from the line of Anthony Pettinari with Citigroup Group Global Markets, please proceed with your question. Good afternoon. I was wondering if it's Possible to say when you'd expect to see price cost balance to get an LGM. I understand that you have a lot of offsets on restructuring savings, But how many quarters will it take you to get caught up with the pricing initiatives? And given a really unprecedented raw material inflation Are there any sort of special price increases or special measures that you're undertaking to recover costs? Yes. Thanks, Anthony. So I think to the last part of your question, of course, at the beginning of the year, particularly in North America or really at the end of In North America, we started to see the spike in chemicals and films with propylene going up. And we did implement a surcharge there and I think we've also implemented a surcharge in a couple of other mode. As well when we've seen some chemical increases through the Q1. At the same time though as we move through Q1, we start to see inflationary pressures Continue to increase as I talked about a bit earlier and we expect more of a sequential increase here in the second quarter probably in the mid single digit range from Q1 to Q2 in particular. So from a perspective of managing that or covering that, we always take 2 pronged approaches, as you've heard us talk about before, Looking at material cost reengineering to take cost out as well as reducing pricing or increasing prices to cover the rest of that. So I think Overall, we're looking at over a period of time, we're continuing to be able to cover the inflationary pressures between those two levers. Typically, we do have a quarter or so lag as we've talked As well and we'd expect to see a similar level here this year. We'll see in the Q1 year over year still had some price down from some of the deflation we had last year. Okay. That's very helpful. And then just on the chip shortages and any potential impact Your Global Automotive Business in IHM or RFID, we've heard about that impacting readers. Any kind of finer point you can put on the impact of the chip shortage either in the quarter or maybe the risk for running through the year? Yes. Well, Anthony, so we're seeing if you talk about end markets, automotive being a good example, we definitely would be impacted by whatever is happening in the end markets there and the chip shortage would be impacting that. We talked about our strong growth and that's including in automotive in Q1, even adjusting for the easier comps. So, that's definitely something that should be part of your outlook. It's part of ours for sure. We think there's also going to be some pent up demand for automobiles as well. So that's something that we would see as a bit temporary, if you will. More broadly, if you think about RFID, so from our own supply chain standpoint and so forth, we feel that we're in a good position To continue to meet our objectives for this year, next year and so forth. Obviously, we've had to jump through a few more hoops, moving one Things around between various suppliers and so forth, but we feel that we're in a good position overall, from that perspective. Thank you. Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question. Yes. Thanks for taking my question. Just maybe a follow-up on the raw material side. Just given all of the supply related issues, the surging raw material issues, Did you have any issues in actually getting material for the quarter? Or do you foresee any for 2Q? And as best you can tell, Are you in a similar boat as your competitors? Or did you maybe fare this better just given your scale? I guess, how should we think about that? Well, we absolutely had a lot more hoops to jump through here in the quarter, particularly because of what happened in North America, John, With the Texas winter storm, as I called out, so there was we were able to leverage our global scale sourcing material from various regions As well as just our size overall. But, yes, this definitely had an impact in the entire industry, including us on lead times. So our lead times were a bit longer than the normal 2 days. There were a few days throughout the since that winter storm and continue to be a little bit at elevated levels overall. So yes, it has impacted lead times, Not our ability to overall meet customer demands. And as far as on a relative basis, we haven't seen the share data for North America specifically yet. So we can't comment specifically on that, but we feel that we were probably in a better position on a relative basis And the broader market. Got it. Fair enough. And then maybe you can just speak to on the RFID front, obviously, some really solid volumes. And it sounds like Even your excitement level, which has always been pretty high here, it sounds like it may be even higher and the investment that you're putting into it may be stronger. I guess, how Should we think about just given all the pilot programs you've been doing, what seems to be COVID kind of putting an incremental light on The importance of supply chain management, I guess, how should we think about the ability for at least the next 12 to 18 months call for this business To even accelerate from the high levels that it's at right now. Yes. Well, John, you said level of excitement is increasing. Maybe we were understated in the past. We've been consistently energized about what this business In the past, we've been consistently energized about what this business can do. Yes, as far as With the next 12, 18 months, we've laid out that we expect this business to be able to grow 15% to 20% over the long term. We continue to have that conviction. And as those Get on to be ever built upon ever larger numbers and has an even greater impact on the overall growth trajectory of the company. So As we said, we have a number of years still ahead of us on just retail apparel adoption. We see huge opportunities in other categories, food and logistics as examples. And we're looking to further build on our RFID capabilities as we build out the intelligent label platform. So it's very consistent with what we've been talking about and we continue to be energized The opportunities that lie ahead. Thank you. Our next question comes from the line of Jeffrey Zekauskas with JPMorgan Securities. Please proceed with your question. Thanks very much. Your operating cash flow in the Q1 was a couple of $100,000,000 And normally, it's a really low Number relevant to the other quarter. And it looks like you managed your payables differently than you've done it Historically, and that usually payables don't change very much year over year, but this time, maybe they were up 150,000,000 Are you doing something different in working capital? Hey, Jeff, this is Greg. So on working capital, I think It's a number of fronts really that we've been driving. One is obviously last year at this point in time we were seeing customers stretch Payments a little bit, DSO had gone up a bit last year and this year that's back down 7 days or so better than it was a year ago. We've also improved our inventory turns. And our DPO isn't too much different now than it was at the end of Q1 last year. It's really just The change from prior year and we did have as we talked about last quarter just given the counter shift a little bit more of payments that otherwise would have flown into that went out in Q4 of last year. So that's really the biggest difference on a payables perspective when we look at this quarter versus others. It's not that we've made a significant change in terms of other things on a more ongoing basis. And In your label and graphic material business, when you think about your China volumes, if China volume Do you think that they were unusually strong in the quarter? And if they weren't and they kept on at this level, What might the volume comparison be year over year? Yes, Jeff, I'm not sure exactly. So the China volume was quite Strong. And it's coming off of a weak comp. So China last year was down. That's where the pandemic started. And it's relatively anemic through most of the year. So the comps are not as easy, I'd say, going through the rest of the year, but still relatively easy based on what Generally, overall GDP is doing within China and so forth. So we do expect we've got tougher comps, if In the mature regions and a little bit easier comps in China as an example. Maybe I should have asked Differently sequentially, did China change very much? Yes, we had strong growth in the quarter Over prior year and last year is obviously when we saw more of the impact from COVID early in Q1 of last year. And China started to recover a bit in Q2 last year and then recovered more in the back half. So the comp is certainly a different impact this year in the Q1. I I think from a run rate perspective, we continue to see some improvement, but a lot of year over year growth this quarter was really due to the Comps from last year. Yes. So Jeff, Q1 on just a pure sequential is above Q4 overall. Thank you. Our next question comes from the line of Adam Josephson with KeyBanc Capital Markets. Please go ahead. Thank you. Thanks. Good morning, Mitch and Greg, and congrats on another really good quarter. Thank you. Greg, the so you raised your organic sales growth range by 4 points. And if I heard you correctly, I think Price is incremental price is about a point of that. Please correct me if I'm wrong there. So assuming your volume expectation went up by about 3 Points for the year. Can you just talk about which regions and end markets particularly surprised due to the upside in the quarter such that You moved the range up by as much as you did. Yes. So I guess price we would expect to be a couple of points this year given inflation in that mid to high single digit range. So again, from a year over year perspective, price is down a little in Q1. We'd expect it to be up as we move through the course of the year, Given the price increases that were taking effect at the tail end of Q1 in particular and early here in Q2. So we did raise organic maybe not or the volume growth I guess maybe not quite as much as We certainly rated just based on the strong growth that we saw coming out of the Q1, across the portfolio really. And then as Mitch already talked about, in April, we're really seeing the rebound and especially in the businesses that were most hardest hit last year. So looking at the year over year comps in April isn't as meaningful just given that was really the trough Month for a lot of the declines last year in RBIS and graphics and IHM. But overall, net of the price increase pre buy Continue to see strong volumes as we entered April. So that's what gives us confidence to increase the range for the year. And Adam, just to build on that, if you look at our Shifting our growth outlook for the year. When we were at Investor Day, we laid out our long term objectives of 5% plus CAGR through 2025 ex currency, we said from 2022 beyond it'd be 4% plus. And Basically what we're communicating is we couldn't really tell the timing of the recovery and how quick it would come back. We knew by 2022 Between this year and next, it will be fully back. And it seems to be coming in a bit quicker than our assumptions were originally. So, definitely things are picking up Faster than we had anticipated for the reasons that we've talked about and Greg referred to. But when you think about long term perspective, Think about it as we weren't sure exactly what the pace and timing of the recovery would be. It seems to be happening a bit quicker than we had Anybody had previously, no. And I appreciate that, Mitch. And just one follow-up on that. So you had really strong growth in China, which is Obviously, mostly rid of it rid itself of the virus by now. Brazil is almost the exact opposite and it's one of the worst hit countries In the world and yet those were 2 of your strongest countries in 1Q, if I heard you correctly. So what is the common denominator here in terms of the strong growth you're experiencing? Well, one, there's the general I mean, the common denominator is There's e commerce and focus on consumer packaged goods broadly. Specifically within those, it's a bit different. In Brazil, They've had a huge surge in COVID-nineteen, which has a normal migration we've seen elsewhere Consumer packaged goods, but you also have a lot of stimulus, and so a lot of money in a lot of people's hands, and they are spending it. So that is a different, very different than what we're seeing in China, of course. Thank you. We now have a question from the line of Neel Kumar with Morgan Stanley Investment Research. Please proceed with your question. Great. Thanks. Can you just give us a sense of what's embedded in your full year guidance in terms of incremental margins for the consolidated And by segment, is it still fair to expect the stronger margin step up in RBIS and IHM, just given a higher proportion of value added categories? Yes, I guess, so broadly looking at the years, as we talked about when we came Into 2021 in our last call, looking at high level coming into the year maintaining or even growing a bit our margins year over year With the biggest part of that growth coming from RBS, obviously, which was depressed last year, particularly in the Q2 when the trough of the pandemic. So looking at that to recover closer to or maybe better than 2019 levels within RBIS and then continuing to move IHM towards its long term targets. So We expect to continue following that path, as we look across the course of the year and continue to drive growth, particularly in those segments. In LGM, we To grow margin 2 points last year, and obviously with the inflationary pressures here this year, wouldn't look for as much margin growth in LGM as we would see in the other segments That's helpful. And then within the graphics business, you realized 9% organic growth in the quarter. In the past, I think you've talked about this business historically taking about 4 to 6 quarters before you recover from a downturn. Can you discuss some of those drivers and strength and So just generally, I would say it's the increase in that you would normally see compounded by people have spending more time on focusing on customizing their cars and putting on car wraps and so forth. And then we also believe we've captured some share, particularly here in North America. Thank you. We now have a question from the line of George Staphos with Bank of America Securities. Please proceed with your question. Thanks. Hi, everyone. Good morning and good afternoon. Thanks for all the details. My first question was going to focus on RBIS And kind of the first part of that, in particular with intelligent labels, the 15% to 20% long term target and The 20% growth that you saw in the Q1 is certainly very, very good. If there was a gating factor in terms of Demand or the ability to grow even beyond that, where would it lie? Would it be your customers' willingness To trial and have the capital to do these trials? Or is it on the Avery side in terms of your ability to manage That type of growth or is it in the supply chain? How should we think about that if there is in fact growth beyond the current Yes. So we think the 15% to 20% is the right range overall, George, as we've reiterated. And as far as the gating factor, If you look at within apparel, it's not our ability to roll this out or anything. It's just there's a normal adoption curve as you go through these things. And We're always when you actually go to first adoption for a particular retailer or brand, there's a big surge for that individual We've been creating tougher comps for the next level of rollout, so forth and so on. So we think that's the right target overall for the business. So that's on apparel. If you look outside of apparel, I mean, it's very nascent, but we see a huge amount of opportunity there and a lot of pilots going on. And It's where apparel was 5, 6 years ago. We expect the lead time between much greater adoption and it being at the Pilot phase to be shorter than what it was in apparel, but that's essentially where it is. So very different whether you look at apparel, which is the primary growth, if you look at growth dollars right now and for the coming years, and the newer categories we've talked through. The only other thing I'll say is The pipeline has been up quite significantly within apparel even, so that was an accelerant. What happened with COVID was an accelerant within the apparel category, specifically over the last from where we were 12 months ago. And we expect that we'll continue to see momentum in rollouts from Those customers that we're working with now. Thanks, Mitch. That's very helpful. Second part of the question and then I'll throw in my other one. I thought I heard you say that within RBIS, you had some benefit from releasing reserves on receivables. If I heard that correctly, could you Quantify that or I didn't catch that correctly, just state what you're getting out there. And then If you could talk about the other costs, I think the majority of the other temporary cost savings have come back into The P and L, but there's still some amount related to travel that hasn't come in recognizing that's not going to come in until the businesses actually can Sustain that, right, because you're required to travel and so on for commercial purposes. How would those numbers how would you parse that? What's Come in what has yet to come in from the temporary cost saves. Thank you. All right. Thanks, George. Just on your first question, this is really about In the Q1 of last year, if you recall, at the start of the pandemic when really retail apparel started to get impacted heavily in the month of March, We saw some delays in payments and some things happening in the market there where we took more receivables reserves. We since worked Through that through most of last year. So it wasn't really an item in Q1 of this year. It's really just more about the comparison to prior year where we had a headwind last year in the Q1 that didn't repeat this year. And then on the temp cost piece, as we talked about earlier, last year we had about $100,000,000 of temporary cost savings And that was split into a few buckets. One was really volume related items and that was more about half or sorry, about half of the overall savings. That's items like temporary cost reduction, overtime reductions, some furloughs, etcetera. And the majority of that, by the way, is really in Q2 of last year when we had the volume trough. And then another portion of that was incentive compensation and the remainder was belt tightening costs such as travel and other type of expenses like that. So The volume piece has clearly come back as we saw volume return late last year and into the Q1 as well as the incentive compensation pieces Coming back here in the Q1 of 2021 as well. So it's really that last piece around more discretionary type of belt tightening type of spend that we would expect. Some of that to have come back already in Q1 and the rest to come back as we move through the year and people start traveling more and things like that. So We still would expect the majority of those savings to be a headwind this year versus what it was a year ago. And that would reduce a little bit, particularly in Q2, Where we had the bulk of that savings last year that we reduced a little bit of the flow through from the incremental growth year over year as well. Thank you. And our next question comes from Josh Spector with UBS Securities, please go ahead with your question. Thank you. Yes. Hey, guys. Thanks for taking my question. Just on the LGM margins and to kind of follow-up on some of the price cost kind of dynamics here. I don't know if you could provide us some context What you think the exit rate is for LGM this year, given what you guys stepped up last year over 2019, Do you think is that a sustainable level? Margins have stepped up for you and key peers. So What makes you confident in the margin level of that business? Or what are some of the puts and takes we should think about? Yes. Thanks, Josh. So I think we don't give margin targets by BU, I guess, right now for the year. But when we look at where we exited last year We talked about or I talked about a few minutes ago and I think in our last call, our focus on margins for the year, we really expected more growth in RBIS and IHM. And LGM had already grown a couple of points last year as you said, looking more to hold that this year. And we've done that obviously in the Q1, But it's not just really about price. It's been a heavy amount of volume growth that we've talked about in Q1 as well as a significant amount of productivity. So a lot of the restructuring costs that we talked about came in LGM, particularly in the graphics side of the business, but also with some productions in North America over the last year or so as well. So it's been a combination of driving productivity and continuing to drive that The ongoing every year productivity as well as periodic restructuring type of productivity that's helped drive those margins in addition to the strong volumes that we've seen recently. Thanks. I appreciate that. And just as a follow-up, you talked about the raw material increases and the impact of that near term. How about any cost impact that's kind of baked into your thoughts for the next couple of quarters for maybe using a different formulation that might be more expensive Supply customer or logistic costs that might be added in this current environment. Is there anything that you would call out as kind of more temporary over the next Well, I think in addition to raw material costs, we have seen cost increases, especially in ocean freight. We've seen cost increases even in things like pallet costs for instance is wood costs has gone up a little bit in certain regions. So When we think about inflation, we're looking at it more broadly than just materials. We're looking at all of our input costs, freight and supplies and other things as well. And those are areas where we look to get more productive where we can through productivity actions and then also obviously increasing price and we take all those things into account when we think Pricing actions or surcharges on freight and things like that also. Yes. And Josh, just to build on just broader context As Greg said, our objective, we're an EVA driven company looking from the optimum point between organic growth margins and capital intensity. And we had expanded LGM margins quite a bit going last year. We said our objective, as Greg already said, was to hold it this year. So that's the overall context. In Q1 specifically, if you recall, we had accelerated a number of restructuring actions. We still The temporary cost savings as well as the fact that we had the variable flow through of the pre buy happening. And the margin you see, we remain confident in our ability to hold the margin level based on what we see now, hold the margin level that we had of last year. Now that is a total across the regions. A lot of the cost pressures, both raw material as well as the other factors that Greg called out, Our disproportionately in Q1 were in North America. So North America is actually having a profitability challenge right now as far as where they are. So the average doesn't necessarily tell the story of what's happening within each region. And I know a lot of us here sitting in the States can see things more of what's happening here. So there's definitely a little bit more of a challenge there that we're working through and both from driving productivity, Working with our supply chain partners, as well as raising prices right now. Thank you. And our next question comes from the line of Rosemarie Morbelli with G. Research. Please proceed with your question. Thank you. Good morning, everyone. While I recognize it is a small piece of your business, But I am talking about Healthcare, and I know you have great expectations for that business. So can you touch on what is behind the decline? Is it more a question of difficult comps versus higher demand last year? Or are there other underlying reasons, right? Yes. So the healthcare portion Chinav ICHEM is really 2 components. 1 is our kind of medical tape business and the other would be what we call personal care tapes such as diaper tapes. When we look at medical tapes over the last number of quarters, we've seen just given a reduction in the number of elective surgeries and things like that, A bit of reduction that we think we're kind of working through at this point, but a bit of a reduction over the last few quarters of medical tapes as a result of some of those type of activities being lower than they normally would be. Where we actually saw a decline in this quarter was in diaper tapes. So a year ago, we We saw an increase there partially due to some of the surge in stocking up by consumers at the beginning of the pandemic in the U. S. And Europe in particular. And So we're just seeing a little bit of a comp headwind year over year on the DiaperTape side in particular. All right. Thanks. And then looking at the SmartTrak Acquisitions, have you seen any benefit in terms of expanding your RFID in markets such Jazz, auto, food and other markets, which they were bringing some business into? Yes, absolutely. So SmartTrax has been a very fortuitous acquisition for us thus far given The continued ramp across all end markets, specifically your question around industrial and automotive applications, those actually, As you would expect, given the end market has declined a bit since the acquisition due to COVID. But as far as Pipeline and the customers are working with a number of programs where we've already got ramping up adoption right now. We do continue to see good opportunity there. The key element here was the end market access you mentioned, Rosemarie, as well as the just broader capabilities that are very complementary What we had as a legacy RFID business as well. So overall, the acquisition is Meeting and exceeding our expectations on top and bottom line. Thank you. Our next Question comes from the line of Christopher Kaapsch with Loop Capital Markets. Please proceed with your question. Yes. Hi, thanks. Mitch, in response to a prior question, you mentioned that some of the disruptions in higher raw material costs were more acute and skewed North America. So I'm just wondering if that would imply that your pricing actions were more aggressive also in North America. And really curious if the pre buy therefore was more pronounced in North America. I was curious Further, the outsized growth in emerging markets, I was wondering how much they're benefiting from Free Pie? Yes. So without getting into too much detail, overall, it's not just by region, it's also by Category, so films and chemicals is where we tend to see the broad based level of inflation in Q1. North America definitely was feeling it first and it's where we announced some of first price increases in the quarter. But since then, U. S. Kind of led the way, but the rest of the regions have been following as far as the raw material inflation that they're seeing. So When you look at a sequential Q1 to Q2, it's pretty broad based overall. As far as the pre buy, we're seeing Elements of that in a number of regions, but North America is definitely 1 and then some in the emerging markets as well. Specifically, China is where we believe that we've Some detectable levels of pre buy. Okay. And then on the margins in the LGM segment, You mentioned that volumes, but also mix contributed and makes sense on the mix with graphics Some reflective recovering stronger than you expected and with the outsized growth in emerging markets. So as you've said in the past, the emerging markets carry higher margins than The more mature Western markets. So I'm just wondering if any way you could park out the margin benefit from volume leverage versus mix in terms of Margin Improvement and LGM segment. Thanks. Yes. Chris, I don't know if I'd Parcel specifically, clearly there's a benefit from both, just the strong volumes overall on the label and packaging material side and we saw that in the base, but we also saw Strong volumes on durable labels and specialty labels particularly in a handful of regions as well. So there's kind of broad based strength, not just on graphics and reflective, but also in the kind of durable side of the label business, which typically has a little bit higher variable margins as well. So Good mix from strong growth in those areas as well as just really strong volumes on the base portion of LPM as well. Thank you. We now have a follow-up question from the line of George Dauphos with Bank of America Securities. Please go ahead, sir. Thanks very much. Hey, Greg, I just wanted to double back. So the comparative factor Versus Q1 of last year in terms of the reserves on receivables, what would that have been quarter versus quarter? Few $1,000,000 $10,000,000 just trying to ballpark it. And then I had a question on sustainability. Yes. From a year over year perspective, we saw an impact and we talked about this last year in Q1 really on the graphics side of the business within LGM and then within the apparel business is We saw more of that at the Q1 of last year. So that was probably in the $0.10 plus range from that perspective last year. Okay. Thanks for that. And then my other question, I was going through your sustainability data and it looks like you've done A pretty good job of reducing your GHG emissions relative where they've been a few years ago. And same thing on waste generation. I know it's not one thing or three things even, but if there are a couple of highlights in terms of what you're doing on those in those areas to reduce Generation, what would they be? Thanks guys and good luck in the quarter. Yes. Thanks George. Yes. So specifically, I would say it was Making it a priority an area of focus. If you recall in the past, if you go back 6, 7 years ago, We had said we were going to start focusing our engineering teams and so forth, not just on driving productivity on the P and L, but also on capital intensity Improving our capital efficiency overall. We made great strides there. And then a number of years ago, we then said we also want to shift our focus towards Reducing the environmental impact of our business. So on greenhouse gas emissions specifically, a lot of it Just reducing the energy intensity of our plants, as far as reducing the amount of natural gas that we use and so forth in electricity, And just redesigning our processes specifically on the manufacture of our goods and operations of our plants. So really just an area of focus And there's not, like you said, 1 or 2 big things. It's a lot of little actions, and it's just about setting a goal and measuring progress and performance every step of the way And giving a lot of the visibility and attention from senior management cascaded on down. And as you saw in our new targets that we laid out through 2,030, In addition to raising the bar on reducing the environmental impact of our business, both on greenhouse gas and responsibly sourcing materials, We're talking about how we reduce the environmental impact of our products, delivering innovations that advance the circular economy, continuing to reduce the environmental impact Our operations, as I said, and obviously making a positive social impact in our communities. Thank you. Mr. Butier, I will now turn the call back to you for any closing remarks. Thank you. Okay. Well, thank you everybody for joining. And once again, I just want to send a huge thanks to the entire team for their tremendous agility And just continued commitment to excellence. Thank you very much. Thank you. And that Ladies and gentlemen, this concludes the conference call for today. We thank you all for your participation and ask that you please disconnect your line. Thank you once again.