All right. Good morning, everyone. Welcome to Avery Dennison's 2026 High Value Category Investor Showcase. I think you all know me, but I'm William Gilchrist, Vice President of Investor Relations. It's great to see you here today at our headquarters in Mentor. We're excited to feature our high-value categories and their strategic importance to our financial objectives. Today's presentation materials are available on our website, and the presentation is being recorded, and a replay will be available later this afternoon. Before we dive in, a couple of important reminders for you all. For those joining us in person, you received an Embelex digital activation trigger patch when you checked in. If you tap it with your phone, it'll bring you to an ability to access today's agenda, presentation slides, showcase demonstrations, speaker bios, and more information about the event. A couple other things to note.
Although we do not anticipate any emergencies here today, for those of you in the room with us, in the event there is an emergency, please evacuate the building. You'll see a map here. Go to poles one and two in the parking lot, and that's going to keep you safe. Second thing is, in addition, please note that throughout today's discussion, we'll be making references to non-GAAP financial measures. The non-GAAP financial measures that we use are defined and qualified, reconciled from GAAP in the appendix of the presentation. Remind you that we'll be making certain predictive statements that reflect our current views about our future performance and financial results. These forward-looking statements are made subject to the safe harbor statements included here on slide four. Finally, we have a great agenda here for you today. We're all thrilled about this and very excited.
You'll be hearing from Deon and Greg, and several other leaders on the strategic importance of high-value categories. We'll take you through each of these high-value categories over the next about 90 minutes, and then we'll invite everyone back up on stage for Q&A. After that, we'll have lunch, and then for the people in person, we'll do a demonstration of all the high-value categories at the facility here. With that, I'm going to turn it over to Deon Stander, our President and CEO.
All right. Good morning, everybody, and welcome to Avery Dennison's High Value Category Showcase. So whether you're here in person today or on the webcast, thank you for making the time to spend with us at your day today as well. I'm Deon Stander. I'm the President and CEO of Avery Dennison, and on behalf of the whole Avery Dennison team, we're excited to share a deeper view into our high-value categories, which are the key growth platforms where we consistently deploy capital, both organically and inorganically. Today is all about giving you a clear view of what these platforms actually do, the expanding addressable markets they tap into, the secular tailwinds behind them, our competitive moats, and of course, the specific growth initiatives driving our performance within those.
Before we zoom into the individual platforms, let's just take a step back and really look at the foundational snapshot of Avery Dennison today. As you know, at our core, Avery Dennison is a global leader at the intersection of material science and digital identification, and we operate in over 50 countries with 35,000 employees. We build solutions that address key industry challenges, such as optimizing supply chains, reducing waste, mitigating loss, and driving advancing circularity and connecting brands directly with consumers. Financially, this positioning delivers strong, highly resilient performance. In 2025, we generated $9 billion in net sales balanced across our Materials and Solutions Groups. While the enterprise delivered solid mid-single-digit organic growth in the past five years, our high-value categories outpaced the core baseline with high single-digit growth, now representing nearly $4 billion of our total top line.
Crucially, high-value category margins consistently trend above our enterprise average, proving that as these platforms scale, they systematically lift the profitability of the entire company. Beyond these headline numbers, our momentum is underpinned by the structural resilience of our broader portfolio. As you can see, this structural resilience rests on three key pillars. Firstly, roughly 60% of our sales are tied to essential, less economically sensitive end markets like food, beverage, pharma, and personal care, providing durable demand through any cycle. Second, our global footprint is exceptionally well-balanced. Strong core positions across North America and Europe are complemented by emerging markets that now represent roughly 30% of our revenue, giving us direct exposure to faster-growing economies. Third, as you can see in the chart, our portfolio transformation is accelerating. High-value categories now represent roughly 45% of our total sales, up nearly 10% over the last five years.
This diversification provides a distinct advantage, a resilient foundation that protects earnings through macro volatility, paired with dynamic growth engines that drive outsized profitable revenue growth in time. Expanding these categories to nearly half our revenue isn't happening by chance. It is a direct outcome of how we execute our core enterprise strategies. To be clear, these strategies are proven and have guided us across cycles with high-value category growth remaining a consistent foundational pillar. While high-value category expansion is listed as our first pillar, it directly aligns with our commitments to lead at the intersection of the physical and digital, and environmental and social responsibility, while allocating capital with discipline. At the same time, pillars two, four, and five emphasize continuing to grow our base business profitably is vital for us.
These market-leading businesses provide reliable foundation to deliver earnings and cash flow and enable investment across our portfolio. Together, these five pillars give us the strategic balance to deliver GDP plus growth and top quartile returns through any cycle, which we believe is a recipe for superior value creation. Now, let's look at how the strategic engine operates within our first reporting segment, the Materials Group. The Materials Group is the undisputed global leader in self-adhesive label materials, roughly 2.5 times the size of our next largest competitor. Generating over $6 billion in sales, approximately 38% of this segment is now in high-value categories. This business is built on durable, competitive moats. Our global scale, serving over 10,000 converting partners, our deep material science expertise, and vertical integration into adhesives, capital-efficient assets that yield strong free cash flow conversion.
The financial impact of our high-value category strategy here is clear. While our core businesses grow steadily, the high-value category platform delivers mid-single-digit organic growth at profit margins that trend consistently above the segment baseline. Materials Group combines a highly productive cash-generative foundation with strong growth, high-value category businesses that drive long-term GDP plus growth. Turning to our Solutions Group, you can see how high-value category scaling creates an even faster growth acceleration. The Solutions Group serves as our high-growth digital and branding engine, generating $2 billion in net sales, with high-value categories now accounting for approximately 60% of the total mix. Backed by vertical integration, extensive application expertise, and over 1,500 patents in Intelligent Labels alone, this group solves critical industry challenges in supply chain visibility, labor efficiency, and brand identity. The financial impact is compelling.
Our high-value category platforms and solutions have grown at low double-digit organic growth while generating premium margins above the segment average. Solutions Group is leveraging these category expansions to power outsized top and bottom-line growth. While each segment addresses different customer needs, all of our high-value category growth engines are linked by common macro tailwinds. As you can see on the slide, whether in materials and solutions, every high-value category in our portfolio is propelled by three powerful secular tailwinds: digitization, sustainability, and personalization. Because our high-value category sits squarely at the intersection of these trends, they enable us to solve the four primary industry challenges we recognize, which are optimizing labor and supply chain efficiency, reducing waste and mitigating loss, advancing circularity and sustainable materials, and connecting brands and consumers more transparently.
Solving these ubiquitous challenges expands our addressable markets, positions us as the partner of choice with customers, and gives us confidence that our high-value categories will continue to outpace GDP across cycles. To bring this all together, my final slide illustrates how this intentional strategy has systematically shaped our financial portfolio over the past decade. Our strategies have proved our long-term financial thesis, and what you see here is the direct relationship between expanding our high-value category exposure, drive organic outgrowth, and expanding overall enterprise margins. In our Materials Group, high-value categories have grown at mid-single-digit rates, outpacing GDP, leading to the high-value category mix expanding to nearly 40% and driving meaningful underlying margin expansion. Meanwhile, for the Solutions Group, the transformation has been even more dramatic. Growing mid-teens has helped us improve the high-value category exposure to 60% of our sales, which has contributed to substantial margin expansion.
The specific strategies and end-market growth drivers for each high-value category that you will hear about later today underpin the strong confidence and conviction we have in continuing to see outsized growth across our portfolio. Over time, these high-value categories will continue to expand as a percentage of our total revenue, serving as one of the key engines for continued margin expansion across cycles. With this foundation set, I am delighted to hand over the stage to Danny Allouche, our newly appointed Materials Group president. Danny brings deep strategic expertise across our businesses, and he will take you through a deeper dive into our materials platform, and the growth drivers within it. Danny, over to you.
Thanks, Deon. Hello, everyone. It's really great to be here to talk about the Materials Group and specifically the opportunity that we have within performance materials. Before I dive into the performance materials, I would like to spend a few minutes on my impressions about the Materials Group over the last 100 days of me in the role. I've spent a considerable amount of time in the Materials Group over the last 16 years. I come to the role with a good understanding of our markets, our strategies, our strengths, and our opportunities. In recent weeks, I've spent an opportunity to visit many of our sites around the globe, and it's given me an even clearer understanding of our strengths, where we can perform better, and our opportunities that will drive profitable growth and create superior long-term value. What I've seen and heard has been inspiring.
Across our regions, our employees and our leadership teams both prioritize, recognize the strength and opportunities, and share strong conviction in our group's long-term potential. They also have clear understanding of the priorities that are required to realize the potential. What are these priorities? They are, first, growing our base business above our markets. Second, accelerating our differentiated growth in high-value categories. Third, leveraging our capabilities and access to converter channel access to lead at the intersection of physical and digital, and drive Intelligent Labels growth. Lastly, continuing to use our proven productivity playbook and disciplined capital allocation to ensure our manufacturing cost advantages enable us to grow profitably and generate strong returns. This is a great time to be part of the Materials Group, a high-performing business with a potential for accelerating profitable growth.
We're approaching these opportunities from a position of strength, building on resilient franchise with a strong market position, strong profitability, and the best team in the industry. I am excited to be part of this team and its future. As Deon mentioned, growth in high-value categories will be key to delivering robust organic growth, exceptional returns, and strong economic value added. Today, we will highlight three of them. Specialty and durable labels, which will be covered by Mariana, our Vice President and General Manager of Materials Group in EMENA. Graphics and reflectives solutions, which will be covered by Bethany, our VP and GM of our graphic solution in North America, and performance materials, which I will cover. Over the last decade, these businesses have generated mid-single-digit organic growth CAGR. They serve markets with above-average growth potential and large profit pools, and they all leverage our core capabilities.
Let me start with performance materials. Performance materials are highly engineered functional materials, including pressure-sensitive tapes, liquid adhesives, and sealants that serves specific critical customer needs in bonding, sealing, protection, thermal management, conductivity, and many other functional materials in end markets. As you can see on the left-hand side of the slide, performance materials is a $500 million business for us today and has growth at mid-single-digit CAGR. It's composed of our industrial and medical tapes and adhesive businesses, including our recent acquisitions of Taylor Adhesives. Sales fall into four end markets, building and construction. For example, the adhesive used to install flooring in your homes. Industrial and electronics, connecting semis in your phones. Automotive, including brake shims and noise vibration in EV vehicles. Medical, for example, in wearables.
In the middle of the slide, you can see that sales are concentrated across North America and EMENA, followed by Asia-Pacific. All markets represent strong growth potential. In the next few minutes, I would like to share how we view these products and solutions, the markets, and the significant growth and margin opportunities we see in them for the Materials Group. It all starts with the value our products and solutions deliver to our customers. Our customers rely on us to help them address a strong number of industry challenges from labor scarcity and productivity pressures to sustainability and regulatory requirements. With our ability to custom-engineer products, we are also helping them adapt to the evolving technology trends such as flexible electronics and miniaturization, and meet new functional requirements such as lightweighting, electrification, conductivity, noise and vibration damping, and thermal management.
In addition to the growth tailwind and solving large customer challenges, a key to the attractiveness of this space is that these products typically provide critical functionality while representing only a very small part of the total end product cost, allowing us to capture strong margins by leveraging our application expertise and adhesive vertical integration to custom engineer to specific product needs. As I mentioned earlier, the markets for these businesses are large and growing at an attractive rate, and we see significant opportunities for further expansion. As you can see on this slide, our current addressable high-value market we estimate to be approximately $20 billion, and we expect it to grow by mid-single digits, driven by strong secular trends and evolving customer needs.
These include increasingly complex platforms, performance specs in growing industry applications like electrification and thermal management, demand for more sustainable solutions, and working productivity needs and safety requirements. On a regional basis, the overall market is well-balanced between developed and emerging regions, with Asia-Pacific experiencing the strongest growth. From a comparative standpoint, an interesting and unique characteristic of this market is while globally it is large in size with fragmented competition, individual segments can be niche in nature with high competitive concentration. For example, the top five industry players hold just 25% global share. But in specifically flooring adhesives, the top five players hold about 75% share. Clearly more concentrated. Finally, on this slide, you can see that we sell to a wide range of customer segments, including manufacturers, converters, and distributors.
The key differentiator for most of these customer groups, as I highlighted earlier, is product performance, quality, and service. Now let us talk about where we are and how we intend to leverage our strategic capabilities to win here. As I mentioned, the market is highly fragmented. Our performance materials business compete with a range of large generalist providers as well as niche specialists. In many of our markets, we are building from a modest share position, providing us with great growth opportunities. On the left side of the slide, you see that we bring a number of key differentiators to these markets, which we believe position us well to grow our offerings and increase our competitive moat over time. First, in product performance and innovation, we bring strength in material science, custom formulation, and application expertise.
Second, in manufacturing quality and reliability, we bring vertical integration in adhesive manufacturing, laminating expertise, and a global network of assets that can produce at scale with industry-leading quality, reliability, and efficiency. Our strategy, on the right-hand side, is to leverage these strong differentiated capabilities to drive organic growth rates, at least in line with the mid-single-digit industry rate, and to expand our margins. Some of these key organic initiatives that will drive our growth are leveraging our existing product lines and relationships to enter new distribution channels and broadening our geographic reach. Increasing our presence in fast-growing end markets such as energy storage, building construction, electronics, and medical applications. Expanding the adoption of the solvent-free adhesive innovations, including our proprietary advanced acrylics and UV warm melt. Let me spend a couple of minutes on these innovations as we believe they are unique and offer great potential.
Solvent-based adhesives are the gold standard for many of today's adhesive applications. They provide superior bonding strength and excellent UV, chemical, moisture, and temperature resistance. But they also have a couple of challenges. They come with higher cost and potential safety risk and high VOC levels. So we asked ourselves, "Is it possible to match solvent performance while reducing cost and the environmental impact?" The answer is yes. Building on decades of material science expertise, our R&D and engineering teams have successfully developed proprietary differentiated technology platforms that deliver solvent-like properties across a range of applications, from automotive, building construction, to medical applications, and they do it with lower overall cost and superior environmental performance. These technology innovations are opening an entirely new opportunity for growth in our external trade adhesives, performance tapes, and specialty label businesses.
In addition to these robust organic initiatives, we also see upside potential with disciplined bolt-on M&A. Now, some of you might be asking, "What's our approach to M&A in this space?" We target high-value opportunities that have strong strategic fit, can expand our capabilities and differentiation, and strengthen our portfolio. We look for companies that complement, strengthen, or expand our current product lines and market penetration, and we look for potential combinations that offer significant cost benefits. Finally, I know this is important to you, we approach the valuation of these opportunities in a disciplined way, ensuring we deliver superior returns. A good example to bring to life one of the product opportunities that we talk about is Taylor Adhesives and our growth opportunities in artificial turf adhesives.
Outdoor artificial turf, think about football fields or any athletic field in our schools, provide an excellent surface that have a broad range of uses and comes with predictable, reasonable maintenance cost. It is increasingly used in municipal, educational, and residential projects. We estimate the addressable market globally to be about $700 million, growing at 8% CAGR. North America, which is Taylor Adhesives' primary market, is growing at 11% CAGR. Turf is taking share from natural grass, and that increases the need for unique adhesives. There are substantial opportunities to capture adhesive share with a higher performing, more versatile product. So after a lot of work by R&D and engineering teams, we have developed a product that meets the need. It's our new Terrain turf adhesive, which we launched recently, and we see significant interest from customers.
We adopted our proven indoor polyurethane technology for exterior use and brought Terrain to market quickly and cost effectively. What Terrain does is replace labor-intensive two-part adhesive with a ready-to-use single component solution that eliminates the need for site mixing, accelerates installation times, and minimizes costly contractor errors. It also provides contractors with an extended working time for precise seam adjustments, yet cures rapidly to support heavy foot traffic in just six hours. Finally, its waterproof formula inherits our strict indoor air quality standards, giving us a sustainability-focused, low VOC product that puts us in a great position to capture projects that increasingly specify sustainable materials. With Terrain, we developed a superior product that is well positioned to capture growth and premium margins. This is just one example of our product innovation. You will have an opportunity to see many of them later on in the showcase booths.
In conclusion, taken all together, our performance materials business has very attractive growth and profit opportunities across a number of high-value end markets, and we have many of the key capabilities required to win. In every market and industry we serve, we have innovation that constantly advances the materials we use and the proprietary technologies we use. We are vertically integrated in adhesives, which gives us deep advantages in developing, scaling, and delivering our products. We have a global footprint allowing us to serve both developed and emerging markets with great quality, service, and efficiency. We are focused on leveraging our existing capabilities to grow organically and supplementing it with disciplined M&A to drive further differentiation, expanding growth opportunities and margins.
We will continue to build on more than nine decades of expertise in material science, process technology, and manufacturing innovation to deliver value in a rapidly changing world for our customers and all of our stakeholders. The bottom line, the Materials Group is a high-performing business, and I hope that after today, you will see that the Performance Materials, Graphics and Reflectives, and Specialty and Durables are very attractive spaces to invest in and have great potential for superior value creation. We have the right capabilities, we have the right assets, and we have the right teams to win. Up next, Mariana Rodriguez, Vice President, General Manager of Materials Group, EMENA, will share her perspective on our largest high-value category of specialty and durable labels. Mariana?
Thank you, Danny. Good morning, everyone. It is a pleasure to be here today to talk about our specialty and durable labels business, our largest high-value category in Materials Group and Avery Dennison. Last year, these categories generated $1.2 billion in global sales. They have delivered compounded annual growth in the mid-single digits over the past five years. Of equal importance, they commanded premium margins, and we believe they will continue to do so. Our solutions are highly valued because they solve unique performance challenges and deliver critical functionality across a wide range of applications. We work closely with our customers and end users to develop these solutions, and they are frequently locked directly into product specifications. They build sticky, long-lasting relationships and a highly reliable revenue stream. Growth opportunities for these categories are global. Europe represents today the largest market for us, followed by North America and Asia-Pacific.
But because pressure-sensitive labels penetration is lower in emerging markets, we expect higher growth in Asia-Pacific, where the adoption of label technologies is accelerating. This morning, I want to focus on why we are excited about these categories and the initiatives driving our continued growth. So what are specialty and durable labels? Specialty and durable labels are used in demanding applications across a wide array of end markets. Everything from food, beverage, and consumer electronics to automotive, chemicals, and pharmaceuticals. Specialty label materials solve targeted application requirements and compliance needs. Some examples of this include reclosure packaging for food freshness, ice bucket resistance in wine and spirits, decorative labels in premium food and beverage, and insulation for cold chain logistics. Durable label materials bring certified performance standards. They are engineered to withstand extreme environmental challenges like high temperatures, harsh solvents, UV exposure, or mechanical stress across multi-year life cycles.
Think about semiconductor applications, solar panels, chemical drums, and auto parts to name a few. What makes these categories so attractive is a combination of resilient end markets, durable secular tailwinds, and a market structure that heavily favors our scale. Roughly 75% of our end markets are highly stable, and overall, they deliver growth above GDP. These underlying growth dynamics are supported by a few long-term mega trends, which you can see on the left-hand side of the slide. Aging population, demand for freshness and convenience in food, premiumization in beverage, cold chain expansion, electrification, as well as requirements for increased durability across finished goods. All of these trends are boosting growth rates across these categories. So how and why do we win here? First, this market is where performance, reliability, quality, and compliance really matters. Customer needs solutions that perform consistently in demanding applications.
This creates differentiation far beyond price and puts a premium on technical expertise. Second, while the competitive landscape is relatively concentrated, the converter customer base is fragmented across thousands of players. This gives an advantage to scale global players like us, serving customers across geographies while delivering agile execution at a local level. We also see customer needs are getting more complex. They require higher performing and functional materials, and they need a partner to help them navigate evolving regulatory requirements. Our ability to combine global innovation capabilities with deep technical expertise and local execution positions us well to capture these opportunities. That translates directly into how we create and deliver value, and we have multiple levers to do so. We grow with attractive end markets, gain share through differentiated solutions, and expand business with existing customers.
We also help accelerate premiumization and innovation, as well as leverage our global scale to drive operational efficiency. We believe we are well-positioned to take advantage of this industry's growth while expanding the value we create from that growth. Today, Avery Dennison is a recognized industry leader already in these specialized labeled markets. We have built leadership on decades of material science expertise, and we maintain it through focus on market-driven innovation. What positions us to win is simple: deep technical expertise, strong customer and end user connectivity, and consistent product performance and reliability. We combine our leading R&D capabilities with world-class process technologies. Just as importantly, our close relationships with converters and end users gives us front-row visibility into where markets are evolving. Those insights give us an edge to turn emerging needs into differentiated solutions. This powerful combination of capabilities and experience is central to our strategy.
Our value proposition is multidimensional. We offer a portfolio that delivers in complex applications. We're vertically integrated in pressure-sensitive adhesives and films. We have the technical expertise to engineer solutions that solve customers' complex challenges. We have the process technology and scale to consistently deliver on product performance and quality, and we have the technical support capabilities and long-standing converter relationships to ensure end-to-end customer satisfaction. Looking ahead, we're driving growth through several key initiatives. We are increasing our share in core markets through next-generation materials. In sectors like beverage, food, and personal care, we're enabling premiumization and sustainability. We are expanding our recycled and compostable label material product lines, developing products that enable circularity, and innovating with high-performance solutions in pharma, chemicals, and durable goods. We're capturing new growth opportunities in attractive areas such as electrification and mobility, cold chain, and functional packaging.
We're combining our own expertise with strategic partnered networks to develop engineered solutions for these emerging needs. An example of this is ThermaVIP+, which provides temperature insulation for pharmaceutical cold chains. We also have ADDRess+, which reduces food waste by extending the shelf life of fruits and vegetables. These are just a couple of examples of how we transform a simple label into functional packaging. Underlying all of this is our broad converter channel access and deep customer engagement. By collaborating closely with our customers from identifying the problem to solution delivery, we bring differentiated products to market, creating long-term sustainable value. A key driver of our commercial success is our strategic partnered network and our go-to-market model. Much of our work with end users or OEMs goes well beyond just a single product. Our collaboration model starts with deep engagement across the full ecosystem.
This gives us line of sight into market needs, validates product performance, and creates pull-through demand. Shaped by these insights, innovation is market-focused and delivers differentiated and application-specific solutions. By investing in the technical and compliance needs of our customers, we also become strategic partners and expand our addressable market and unlock long-term sources of growth. It is a connected customer-led model from insights to adoption to value creation. This model is creating market expansion opportunities in many markets, such as durable goods, electrification, and pharmaceuticals. Now, let me give you an example of how this all comes together. Let's take the pharmaceutical market as an example of this. There are a few key market trends driving increased needs for specialized labels in the pharma sector.
A couple of these are, for example, the biologics market growing by high single digits, while the GLP-1 patient population is expected to nearly triple over the next few years. These require label solutions that perform, and these tailwinds create a multiyear growth opportunity for suppliers that can consistently meet pharma's rigorous standards. In practice, our customers in this space face a few packaging challenges. Regulatory complexity, where a single drug formulation may require multiple versions due to languages or country-specific requirements. Supply flexibility, where manufacturers must have a quick response to demand shifts or vaccine rollouts. Packaging line integrity, where on high-speed filling lines, even a small issue like adhesive bleeding can jam equipment, resulting in costly downtime. We address these challenges through our dedicated global pharma portfolio. We qualify multiple materials for a single application and provide technical and compliance support at a local level.
By deeply understanding our customer needs, we bring new solutions to life. Anything from light-blocking labels that protect sensitive biologics to embedded RFID technologies that enhance supply chain visibility. You will get to see some of this during the showcase. To sum it up, specialty and durable labels represent an exciting high-value growth opportunity for us. We are well-positioned to win, and we will continue to invest and expand our leadership position in these categories. Thank you for your time today. Up next, Bethany Nock, General Manager of Graphic Solutions, North America, will cover graphics and reflective solutions.
Hi, everyone. Thanks, Mariana. It is great to be here with you today. Graphics and reflective solutions represent our second-largest high-value category within Materials Group. Today, I will give you a closer look at these product lines and explain what makes them such an important part of our business and our growth story. Before I do that, let me ask you to picture your ride here today. You likely saw a luxury vehicle that used car wrap and had a cool color and gave it that nice finish. Or maybe a semi-truck that had a huge brand image or a logo on the side. Those are all often a result of our graphic films. Our graphic solutions include premium-quality decorative and functional films. These films are used for personalization. Our films also provide protection and visual enhancement, not only for vehicles, but also for buildings, trains, signage, and storefronts.
Our reflective product lines use highly engineered retroreflective materials to enhance roadway visibility and safety. I would guess, on your way here today, you probably saw plenty of road signage and even temporary work zone signage. Those are all products within our Reflectives business. These high-value categories serve a broad and diversified market. In Graphics, the majority of our sales are concentrated in corporate branding, automotive, and architectural segments. In Reflective, our business is focused on transportation infrastructure, traffic, and highway work zone safety sectors. If you look over to the lower left of the slide, you can see that overall, these product lines delivered over $700 million in 2025. They have organically grown at mid-single-digit CAGR over the last five years. These products capture premium margins. End market customers have demanding expectations in terms of quality, reliability, and durability.
We consistently meet those expectations with unique expertise in the materials used, application challenges, and regulatory requirements. We are innovators, able to develop new solutions to address tough challenges. We are a vertically integrated end-to-end manufacturer, and we can reliably deliver on-demand, at scale. We estimate the total addressable market to be approximately $4.5 billion, and we believe the market will continue to grow at mid-single-digit rate, driven by long-term trends. Within the automotive sector, consumers are increasingly interested in vehicle personalization and customization. Luxury car owners prefer products that are offering protection. They want to be able to protect that high-end vehicle. Then think about electric cars. Many people own an electric vehicle. Think about that. You know they are not taking it in for an oil change. OEMs and dealers are looking for new opportunities to expand their high-margin service and accessory revenues.
They find our graphics products are an attractive add-on option. Our primary customers in Reflectives are the contractors that are supporting government-funded and regulated transportation and infrastructure projects. Demand for our materials continue to grow. This is driven by increasingly urgent need to repair, revitalize, and sometimes replace much of the world's aging infrastructure. There is also a continued shift toward digital printing and its cost efficiencies in the creation of reflective road signs. These high-value categories have two distinct competitive landscapes. Graphics products have a large, diverse, and fragmented end-user customer base of installers, which is served by a concentrated set of distribution channels. The Reflective competitive landscape is fairly concentrated with a fragmented customer landscape of approximately 1,400 global customers, including direct converters, road contractors, work zone, and vehicle OEMs. Market size and opportunity align closely with regional economic development.
Roughly 65% of our addressable market is currently located in developed countries. We expect higher rate of growth across the Asia Pacific region, in line with faster growth rates in household income for car fleets and road infrastructure as well. Both sets of markets come with customer and industry challenges that our products are designed to address. In automotive end users, customers and converters have strict quality and durability expectations. OEMs have shrinking profit pools that they wish to replenish by offering customization opportunities to consumers. Reflective customers require products that address road sign visibility issues, including graffiti vandalism, adverse weather conditions. All of our customers face labor scarcity issues and rising costs. Across our markets, Avery Dennison holds a strong competitive position. We are number two in most of these markets and are focused on building our leadership.
Within graphics, we are leveraging film differentiation, superior process technology, and expanded channel access to accelerate our profitable growth in the automotive aftermarket and in the OEM market. We use our significant experience in material science technology to produce functionalized films and engineered adhesives that continually improve product performance and innovation. Our in-house color cast PVC films are delivering greater color customization and flexibility. We are leveraging our proprietary material science capability in micro-replication to create more highly reflective materials, like our unique Full Cube reflective technology, that is improving solutions for complex road geometries. We co-develop digital printing equipment and workflow software, and we are transforming from a traditional material supplier into an end-to-end solution provider. We now streamline customer expectations, ensure regulatory compliance, and deliver strong, superior performance with warranty coverage, creating competitive advantage, and we're not standing still.
We have a number of key initiatives to play and drive in that future growth. We are pursuing a number of strategies to broaden market share and capture new innovation. These include accelerating growth by expanding into our auto OEM dealer and installer relationships, embedding value and added digital services, as well as scaling advanced printing and product solutions into emerging markets. The growth opportunity for graphics and automotive market is particularly compelling. Major trends are reshaping this market and creating increased demand for next-generation vehicle services. Over the last several years, one of our fastest-growing categories within graphics has been our premium cast film portfolio, which enables both printed designs and customizable color wrap change and for fleet as well as personal vehicles. We've been a leader in this category for more than 20 years, and we continue to benefit from the growing trends in vehicle personalization.
But as consumer awareness and adoption increase, our opportunities are expanding beyond the traditional aftermarket and into OEM and dealership channels. EV adoption is accelerating that shift. OEMs and dealers are looking for ways to differentiate their offerings with service packages and high-margin revenue streams. All that said, personalization is just one part of the opportunity. Vehicle owners, particularly in the luxury and premium segments, are increasingly looking for appearance and value. They want to protect that value of their vehicles. This is driving demand for paint protection films, which is an important part of our portfolio. It protects against scratches, stone chips, staining, all with self-healing technology that helps maintain the appearance of the vehicle. Our strong position and reputation in vehicle wraps provides a great natural foundation to move into that adjacent and growing category.
Looking ahead, we see an exciting convergence between personalization and protection, with next-generation solution films that combine color change and protective functionality into a single product. Our ambition then is to extend the leadership in cast films into growing functional protective film category, bringing the same innovation, performance, and differentiation that has offered us and defined our position in cast films. We begin by expanding into clear protective films and have since extended the portfolio into color PPF, or paint protection film, that enables the protection and personalization in this category and for new opportunities of growth. Now, let's consider the industry shift into digital printing. That's driving the growth in the Reflectives business. Road signs take a beating across useful life from graffiti, dew, and other environmental factors. Transportation agencies are increasing expectations, and sign shops are looking for new ways to improve both product and manufacturing efficiency.
In growing numbers, they are adopting digital printing solutions, which are both more sustainable and more cost-effective. Our strategy is to deliver best-in-class, one-stop-shop printing solution to this market. That begins with an end-to-end ecosystem. We provide a unified product package with proprietary ink and fill materials, software and equipment needed to operate, backed by a single-source warranty ownership. This one-stop solution, which is unique in the industry, also comes with ongoing global technical support, ensuring that shops can operate efficiently and reliably. Our TrafficJet printers deliver built-in anti-graffiti and anti-dew overlays that have set new durability benchmarks. We have now installed over 1,000 TrafficJet systems globally, and as performance specifications continue to rise, we are well-positioned to lead the industry's ongoing digital, which continues to play a key role in advancing our high-value strategy. In conclusion, we have built a strong $700 million base business.
We have the innovation, the teams, the service, and the footprint in graphics and reflective solutions to drive consistent, profitable growth across this attractive growth market. So on your way home today, I hope you look around and thank Avery Dennison Graphics and Reflective Solutions. Now on to Francisco Melo, our president of Intelligent Label Technologies and Digital Solutions.
Thank you, Bethany, and good morning, everyone. It is great to have you with us today, and I am delighted to provide an update on the Enterprise Intelligent Labels platform. Intelligent Labels is a progressive family of sensor technologies that today primarily consists of UHF or RAIN RFID, enabling businesses to digitize physical items at scale, unlocking supply chain optimization, product traceability, and authentication from factory to consumer to resale or recycling. As AI continues to transform industries, the need for accurate real-time data becomes even more critical for powering AI models that inform the right decision-making. Our Intelligent Labels solutions provide the important item-level ground truth data that powers these models. We reached over $900 million in sales in 2025, having compounded at low teens organically in the past five years.
Our margins are higher than the company average, driven by the value we create for customers through our solution selling approach. We focus on customers' challenges, understand what drives their ROI, and work in partnership to establish a solution that meets their needs. We continue to drive adoption, realizing new use cases and value creation opportunities for customers, and have strategically invested ahead of the market growth to both catalyze adoption and maintain our leadership position. Today, end customers' demand is concentrated in developed markets, primarily North America and Europe, while our manufacturing footprint is strategically positioned at the source of production. We primarily serve customers in apparel, logistics, general merchandise, and food segments, helping them address and overcome challenges related to labor and supply chain efficiency, waste reduction and shrink, transparency, and circularity, while simultaneously helping brands better connect with their consumers.
Our addressable market is large, at 350 billion units, under-penetrated, and with units expected to grow at mid-teens, driven by favorable secular trends. In retail segments, customers are relying on RFID data to improve omnichannel fulfillment and drive sales uplift. This began in apparel, but it is expanding to general merchandise as consumer buying behaviors continue to shift to an omnichannel approach. Consumer demand is also shifting, with expectations for better product availability, faster delivery, and specifically for food, increased freshness, which is becoming a critical differentiator in grocery. Across all segments, our customers are grappling with higher labor costs, increasing the need for improved efficiencies and productivity across the supply chain. With the explosive growth of AI, item-level data will help unlock additional value for businesses, where accurate data is essential to fuel business models and improve decision-making.
While apparel remains the largest market segment at approximately 60% of unit value, we are increasingly seeing new large-scale opportunities in food, logistics, and general merchandise, creating a runway for future growth. Specifically in food, freshness management is a key driver as grocers look to improve product availability to drive foot traffic and increase sales lift and reduce waste. This was highlighted in the recent McKinsey survey, which found that in North America, both consumers and retailers rank freshness and quality among the most important factors in the in-store experience. Our unique position in the industry is defined by our leadership across two critical areas of the RFID value chain. We design and develop high-performance, high-quality inlays that we sell directly to end users, leveraging our data management and converting capabilities and through our converter network as base materials.
The combination of the end-user access and the vast converter network uniquely positions us to drive adoption across multiple categories. Most other companies in our space only play in one node of the value chain. We are focused on delivering growth by leveraging our competitive advantages and leading position across three main areas. First, we have an industry-leading, unique go-to-market capability, where we have relationships with end users that enable us to understand their problems, gain insights into what drives the ROI, and partner directly with them to accelerate adoption, along with the capability to fulfill both directly and through channel partners. Second, we hold the broadest patent portfolio in the space due to our world-class innovation talent, spanning RFID engineering capabilities and material science expertise.
We are able to bring these capabilities together to overcome significant technical challenges, to create first-to-market innovations that expand the use cases and accelerate access in new categories. Third is our scale. We have produced well over 100 billion inlays to date, multiple times more than other players. We have manufacturing capabilities that leverage proprietary high-speed process technologies and the footprint to meet the supply chain continuity requirements of our customers. In addition to these core capabilities, we are exploring how our access to billions of item-level data points, combined with the newer AI models, can deliver differentiated value through data-driven solutions that help customers realize greater returns from their RFID deployments and create new monetization opportunities for us. Our growth will be enabled by a combination of go-to-market execution, sensor innovation to drive adoption, and expand use cases across our target segments.
Our investments in Wiliot bolsters our sensor portfolio, creating offering for passive Bluetooth Low Energy solutions that enable condition monitoring throughout the supply chain, a key growth driver in the food segment. The food opportunity represents the largest addressable market for Intelligent Labels. Retailers are looking to digitize their supply chains and address two key priorities, maximizing product freshness and driving profitability. With razor-thin margins in food, optimizing inventory and ensuring freshness are critical. Condition monitoring throughout the supply chain to ensure freshness, combined with efficient in-store inventory management, has a direct impact on profitability. Earlier this year, we launched the AD IdentiFresh inlay series, containing first-to-market RFID innovation designed specifically to meet RF performance requirements in the food category. Our proprietary antenna design and inlay construction overcome key operational challenges in the food retail environment, improving read performance on densely stacked items, particularly within high-moisture environments like meat cases.
Enabling item-level management with RFID creates value for the customer through improved efficiency and labor productivity, freshness management, waste reduction, and sales uplift. Our strategic partnership with Wiliot enables us to scale low-energy Bluetooth technology for condition monitoring throughout the supply chain, unlocking real-time data flows to inform decision-making and maximize product freshness. Combining the two technology creates the opportunity for true end-to-end supply chain management for the food sector, from pallet to case to item level. As you can see from the pie chart on this slide, we are early in the commercial activation of the food TAM. Customers are yet at varying stages of assessing, piloting, and commercializing in only about 10% of the total addressable space. Momentum is building in our pipeline, is increasing nearly 40% in the past year alone.
Recent announcement of Kroger and Walmart, combined with ongoing pilots and programs with other retailers, are a testament to the work we're doing to drive adoption in the segment. Our experience deploying RFID programs in the past two decades, combined with our unique innovation capabilities spanning from RF engineering to material science, creates a competitive advantage for Avery Dennison. We're also addressing upcoming legislative requirements related to PPWR, the Packaging and Packaging Waste Regulation, and EPR, Extended Producer Responsibility, under which customers and businesses will be required to meet new compliance requirements for recycling and end-of-life management of packaging materials. Our AD CleanFlake RFID products have been recognized by the Association of Plastic Recyclers and RecyClass as compatible with existing PET recycling streams. We continue to drive adoption in this space to ensure we remain the go-to innovation partner for our customers as legislation evolves.
As you can see, the opportunity in front of us is significant. Momentum in new categories is building, and secular trends like AI will further accelerate the need for sensor technologies that establish ground truth data. Thank you for your time. I would now like to turn it over to Ned Peverley, our Vice President and General Manager for Vestcom. Ned.
Thank you, Francisco, and good morning, everyone. It's a pleasure to be with you here this morning to discuss the Vestcom business. We are continuing to expand our shelf-edge solution set, where we play an essential role in driving retail productivity and shopper engagement while navigating and capitalizing on key digitization trends. Vestcom delivers market-leading price communication and media solutions at the retail shelf edge, built on a foundation of advanced data composition capabilities to seamlessly manage the complexity of high-promotion frequency retail. As store digitization accelerates through digital media integration and the adoption of electronic shelf labels, or ESLs, Vestcom's storeLink software platform is powering our next phase of growth. In 2025, Vestcom exceeded $500 million in sales for the first time in our history, delivering a mid-single-digit organic growth rate since Avery Dennison acquired the business in 2021.
Currently operating entirely within the U.S., Vestcom generates attractive premium margins. This profitability is driven by data management expertise and our ability to generate outsized value for our clients by engaging shoppers, driving sales, and reducing costs. By delivering on our value proposition in a compelling way for decades, we've earned the business of over 70 leading retailers across grocery, drug, dollar, and specialty channels, including the likes of Kroger, Albertsons, Ahold Delhaize, Walgreens, CVS, and Dollar General. We provide a comprehensive portfolio of shelf-edge pricing execution and ESL management software that enable retailers to bring their pricing and merchandising strategies to life in-store. Once a retailer outsources their shelf edge to Vestcom, we then also retain the right to partner with CPGs to use the shelf edge as a media vehicle to deliver their brand messaging to shoppers at their point of decision.
What better time to influence a shopper's decision than when she's in the aisle with a shopping cart, ready to make a purchase? Our addressable market in U.S. retail is over $2 billion and growing low single digits, powered by tailwinds in physical retail media and store digitization. In our core grocery, drug, and dollar channels, clients face structural headwinds from rising labor costs and store labor scarcity. Retailers increasingly rely on our shelf-edge automation to streamline execution and drive store-level productivity. Equally important, physical stores are re-emerging as the primary engine for brand differentiation. Retailers are seeking ways to engage, educate, and inspire shoppers right at the point of decision using rich product information, lifestyle attributes, and dynamic messaging to build loyalty and expand basket size. This drive to elevate the in-store experience directly intersects with a massive financial catalyst, the explosive growth of retail media networks, or RMNs.
Retail media has become vital to retailer profitability, delivering high-margin ad revenue that directly bolsters their bottom line. As online channels saturate, brands are shifting retail media network spend back into physical stores, where research reports widely cite that over 85% of retail transactions still occur. While paper shelf tags remain our largest volume foundation, growth is shifting toward an emerging Software-as-a-Service opportunity driven by expanding ESL adoption. While U.S. grocers are accelerating ESL adoption to capture labor efficiency, small-format retailers in drug and dollar stores seem to lag due to lower operational ROI from the investment. Increasing consumer concerns and legislative activity to limit dynamic pricing may also slow mass adoption here in the U.S. This creates a bifurcated landscape where paper solutions remain essential alongside digital formats.
From a competitive standpoint, the market remains split between traditional print converters that lack software and dynamic media capabilities, and hardware-driven ESL vendors that face commoditization and lack deep retail operational expertise. Here at Vestcom, we hold a unique position as a central data orchestrator connecting retailers, CPG brands, and hardware platforms to deliver both analog and digital communication in-store. Vestcom operates from an unmatched position of strength at the retail shelf edge, anchored by deep-rooted retail partnerships, proprietary technology, and a proven ability to solve complex operational challenges. Our competitive mode is defined by three primary pillars. First, our breadth of solutions. We're the only provider capable of seamlessly executing both analog and digital shelf-edge solutions, enabling a hybrid store with operational consistency across paper tags, ESLs, and both digital and analog media. Secondly, our product innovation and data mastery.
Our expertise in complex data management and proprietary composition powers our software to orchestrate both physical and digital endpoints from a single source of truth. Our unique ability to integrate item-specific price and promotion data within branded media is highly differentiated among media providers. Third, our unmatched operational and commercial scale. Our national network of specialized service bureaus delivers near-perfect execution with 99.8% on-time, in-full performance. While our dedicated national CPG media sales team actively engages over 500 CPGs, unlocking high-margin ad revenues that help fund our retailers' shelf-edge infrastructure. Building on these advantages, Vestcom is evolving into a true omnichannel provider, the only partner in the industry capable of delivering both physical and digital shelf-edge solutions at scale. This leverages our deep retail acumen, unmatched pricing and promotions expertise, execution excellence, while adapting to the evolution of digitized retail.
Our strategy is focused on high-margin growth centered around three core initiatives. First, growing our analog media business by maximizing opportunities as the exclusive in-store media partner at Walgreens. While further expanding our Blades Media solution across targeted clients. Second, winning a greater share of ESL deployments through establishing storeLink as the software of choice across all major ESL deployments, while capturing a meaningful portion of ESL hardware business through our strategic partnership with Solum. And third, scaling in-store digital media by expanding our in-store digital media footprint through a combination of organic development and strategic partnerships. In addition to these core initiatives, we are also leveraging our relationships with food retailers to unlock pilots and help accelerate the adoption of Intelligent Labels across our client base.
To double-click into our digital transformation, our growth story centers on accelerating our footprint across two key areas, electronic shelf labels, or ESLs, and in-store digital media. For electronic shelf labels, U.S. large format grocers and mass retailers continue to explore ESLs, catalyzed by Walmart's nationwide rollout. In this expanding space, Vestcom's storeLink platform will serve a critical role as retailers' central one source of truth software to orchestrate and deliver price and promotional messaging across both ESLs and analog tags. Our competitive advantage here is clear. We are already deeply data integrated with our retailers' core systems, we seamlessly enable both digital and analog environments, and our software is completely hardware agnostic, preventing vendor lock-in for our clients.
When it comes to in-store digital media, the market is forecast to grow at low teens CAGR through 2029, reaching $1 billion, with most U.S. retailers actively testing various solutions in preparation for scaled deployments. In this expanding in-store media landscape, Vestcom is uniquely positioned to serve as the preferred in-store media provider, offering a diverse portfolio of analog and digital solutions with tag media exclusive to Vestcom. Our competitive edge stems from three distinct strengths. First, we have a dedicated national CPG sales team already in place, engaging over 500 brand partners. Second, we have a unified physical and digital strategy. And third, we uniquely integrate item-level price and promotional messaging directly into dynamic media content. Later today, you will get to see within our demo showcase, the opportunity to experience these solutions in action.
In summary, as physical retail evolves, Vestcom is well positioned to continue serving as an indispensable partner for the modern shelf edge, driving sustainable high margin value. Thank you for your time, and I would now like to turn it over to Michael Barton, Senior Vice President and General Manager for the Apparel Solutions business.
Thank you, Ned. I am pleased to have the opportunity to provide you a more detailed review of our Embelex business and the attractive growth opportunities the business has in front of it. When we evaluate the global apparel ecosystem, a fundamental question arises: How can a standard garment be converted into a high-margin, differentiated brand asset? We believe it requires more than basic manufacturing. It requires a combination of identity, physical customization, and digital connectivity. At Embelex, we are driving this shift by positioning our business as the strategic partner for brand expression. Embelex elevates our category beyond transactional manufacturing, uniting proprietary material science, elevated design, and connected digital experiences into an integrated global platform. We empower performance brands to express who they are, sports fans to express what they belong to, and industrial workforces to express what they stand for.
Financially, Embelex represents a core growth engine within Avery Dennison. 2025 revenue was approximately $330 million, delivering an organic growth rate of approximately 10% annually over the last five years. We secure premium margins by combining material science with scalable software platforms and digital triggers. Our global manufacturing footprint is strategically located near tier one garment hubs globally, coupled with operations to serve clients' fulfillment needs, particularly in North America and Europe. We take the portfolio to market across three key identity pillars. First is brand identity, where we are securing global continuity and design distinction for performance and lifestyle apparel brands. Second is fan identity, which unlocks high margin event monetization, cultural authenticity for leagues, teams, and global icons. Third is professional identity, where we provide certified durability and safety performance across industrial and corporate workwear. Our offering is streamlined into three integrated solutions.
First, the embellishments themselves, which include high definition heat transfers, embroidered patches, woven, and specialty 3D badges. Second is experiences that encompass Custom Studio and digital consumer engagement. Third, are services that span our in-house creative agency and application services. Embelex operates an addressable market that is greater than $3 billion and continues to expand through adjacencies, with end market growth of mid-single digits overall. This expansion is supported by secular tailwinds, including rising consumer demand for customization, growth in active lifestyles, digital fan engagement, and the global cultural shift towards experience-based spending. While our current sales exposure is heavily weighted towards mature end markets driven by the global performance brands, sports teams, and licensing networks, lower penetration in the Asian end market represents additional long-term growth opportunity. The competitive landscape in this space is highly fragmented, composed mostly of regional embellishers and niche converters.
Brands and teams prioritize quality, supply chain reliability and resiliency, rapid turnaround time, and global continuity of product. Embelex bridges a critical operational gap by linking brand and league headquarters directly to tier one garment manufacturing hubs worldwide. In doing so, we solve the industry's most costly friction points, eliminating global brand inconsistency, shortening lead times for volatile hot market demand, and providing full regulatory compliance. The unique combination of material science expertise, digital technology know-how, positions us as a key partner to facilitate physical to digital connections between fans, teams, athletes, and artists under tight timeframes. We are a global leader with numerous advantages over our nearest regional competitors. When you examine our right to win, our ability to outpace the market and drive margin expansion rests on four structural differentiators. First, our approach to integrated solutions architecture. We do not operate as a commoditized trim vendor.
Instead, we leverage our Embelex portfolio delivered through automated factory platforms, application services, and turnkey retail solutions, with the ability to also integrate unique digital experiences to create a unified ecosystem. This shifts our customer relationships from transactional purchase orders into sticky, multi-year strategic partnerships that deliver higher lifetime value. Second, we operate with global scale and localized execution and have optimized our manufacturing operating system around standardized site archetypes. By balancing high volume, cost-efficient agent production hubs with agile nearshore sales close by key distribution centers, we deliver hyper-speed turnarounds worldwide. This dual-track network allows our brand partners to navigate trade tariffs, inventory volatility, without sacrificing speed to market. Third, we focus on upstream strategic wiring, bridging brands and garment factories, and embedding our teams directly into brand design centers 18 - 24 months before product launch.
By collaborating on early concept development, we mandate our embellishment technologies into seasonal lines and secure exclusive rights for major global sporting events, building long-term revenue visibility. Lastly, we leverage our material science expertise to deliver high-durability, specialty solutions that solve complex garment decoration challenges. These proprietary materials protect delicate technical fabrics while accelerating factory throughput and lowering application energy costs for garment manufacturers. Our strategies position us to drive growth aligned with attractive end market growth by expanding share across brand, fan, and professional identities, as well as white space opportunities. We will do this through a number of key initiatives, including scaling experiences through Custom Studio in-venue customization, which you will see a little bit more detail this afternoon, and shifting customer engagement from transactional consumables to high-value, connected solutions and ongoing brand expression partnerships.
Focusing on innovative solutions to differentiate ourselves and unlock entry into high-growth market segments and adjacent apparel categories. We are deepening our strategic relationships and licensing portfolios across global performance brands, sports leagues, and arena operators to secure exclusive events and tournament rights, similar to what we just executed with the World Cup. A key growth opportunity for Embelex is Custom Studio, our in-venue customization solution. Custom Studio delivers live product customization powered by on-demand production, digital designs, and connected operations. Built for clubs, venues, and retailers, it is a turnkey system that enables in-venue, fan-driven personalization. Custom Studio changes the game by transforming every merchandise moment into a connected fan experience. We have a short video to bring this game-changing solution to life.
[Presentation]
Custom Studio is a key part of our fan identity go-to-market pillar. We're capturing major tournament rights while expanding our licensing footprint and adjacent high-growth categories like music, merchandise, entertainment, and venue pop-ups. Through our consumer research, we have validated the pain points and opportunities surrounding in-venue customization, with respondents highlighting that they will abandon purchases if wait times are too long, and that they are willing to pay a premium for personalized merchandise. Custom Studio creates the opportunity to maximize monetization around emotional consumer moments and hot market events, where fans seek seamless experience and the opportunity to customize merchandise to commemorate the moment. Custom Studio has been designed to increase speed and efficiency by blending elevated design and mobile-first custom kiosks to engage fans. To drive operational efficiency, we have also integrated ClearCount RFID into the offering to automate component inventory management, eliminating stock-outs while boosting throughput.
In summary, Embelex represents a highly attractive growth opportunity supported by a well-defined strategic roadmap. By capitalizing on favorable secular trailwinds, scaling our software materials platforms, and optimizing our global operating system, we are well-positioned for future growth. Thank you. I look forward to answering any of your questions this afternoon, and I will now hand it over to Greg Lovins, our Senior Vice President and Chief Financial Officer, to cover the financial review section of the presentation.
All right. Thank you, Michael. Morning, everybody. As Deon highlighted today's really about showing you how our high-value categories contribute to our long-term growth and to overall delivering on our enterprise strategies. As you've seen throughout each of the deep dive discussions here, we have differentiated positions in attractive markets, and we're excited about the profitable growth opportunities across each of these platforms. I'm going to walk you through a few key areas here this morning with a quick review of our total company historical financial performance, a reminder of our long-term financial framework and growth algorithm, and our performance against that framework, and how we continually shift our portfolio using M&A into the future. This next slide here demonstrates how our balance strategy has consistently translated operational execution into value creation over the past decade.
Looking across our key financial metrics, four clear performance trends stand out. First, on top-line growth, we have consistently delivered GDP plus organic growth over the five-year cycles, highlighting our resilience through market volatility. While macro disruptions and disjointed end markets in recent periods moderated our growth, a resilient model has allowed us to navigate these headwinds and maintain strong earnings trajectory. Second, regarding margin expansion, our intentional mix shift towards high-value categories, combined with persistent productivity efforts, has driven sustained expansion in EBITDA margins. This combination of top-line growth and margin expansion has directly compounded our bottom line, nearly tripling our adjusted earnings per share over this 10-year horizon. Finally, underpinning it all is our disciplined focus on economic value added, or EVA. Increasing our overall EVA at a 10% compound growth rate as we've consistently generated returns well above our cost of capital.
This proven long-term track record gives us confidence in continuing to deliver on our financial framework as we look forward. Now, let's review our long-term framework as we laid out in September of 2024, and how we're progressing against our key metrics on the next slide. As a reminder here, this framework is built on four key pillars that guide our value creation model. Delivering strong top-line growth with 5% or more sales growth ex-currency while expanding our margins with an adjusted EBITDA margin of 17%+ by 2028, and compounding our adjusted earnings per share at 10% annually while delivering top quartile return on capital relative to our peers. Looking at our performance against this framework from the 2023 baseline through to the midpoint of our guidance for 2026, we are tracking well against the majority of these targets while managing through macro challenges over the past couple years.
While top-line growth is overall tracking behind our long-term target so far, we are on track from a volume mix perspective, which has been partially offset by deflation-related pricing, particularly in 2024 and 2025. Our margin execution is progressing well. We are on track to meet or exceed this target, powered by positive mix shift and our continuous drive for productivity. That strong top-line growth and margin expansion drives our EPS growth, which is also largely on track, while our disciplined capital deployment continues to sustain top quartile returns on total capital. In short, our operating model is performing, and we are fully focused on executing against these goals over this cycle. To see how this top-line performance breaks down in detail, let me double-click on the long-term growth algorithm that we also laid out in September of 2024 and show you how we are performing against each of these building blocks.
As you saw in the previous slide, our long-term growth algorithm targets 5% or more sales growth ex currency, with the growth vectors behind these targets driven by volume and mix growth over time. That target is built on one point of profitable growth contribution from our base business, then with the majority of our growth coming from the high-value categories, with two points from our non-Intelligent Labels high-value categories, and a point and a half from Intelligent Labels. Then with additional upside from strategic M&A in these high-value categories. Looking at our progress against this growth algorithm, our execution across the majority of our building blocks is tracking in line with our expectations. Again, from 2023 through the midpoint of our 2026 guidance, our base business is delivering low single-digit growth, contributing the expected 1 percentage point to the company growth rate.
As you heard from all the leaders this morning, our non-Intelligent Labels high-value categories have been delivering strong growth at a mid-single digits rate, adding roughly two points to the company's growth rate. And disciplined M&A has contributed approximately half a point of additional growth, largely from the Taylor Adhesives acquisition that we closed at the end of 2025. Intelligent Labels has been growing at a mid-single digit pace, which is below our long-term target rate. Macro end market challenges in apparel and general merchandise, alongside slower than anticipated adoption in food and logistics categories, have led to slower growth over the past couple of years than we had hoped for. As Francisco discussed, we maintain our strong conviction in this significant market opportunity.
We have a strong leadership position and strong competitive advantages that allow us to drive adoption across these categories, with ample room for continued growth in apparel and significant white space in food and logistics. Looking at this five-year cycle through 2028, we expect growth rates in the next two years to accelerate from the mid-single digit pace over the last three years in Intelligent Labels, with growth over the five-year cycle in the high single digit range. In total, these building blocks are delivering approximately 3.5 points of sales growth ex currency through 2023. While that is below our long-term target due to deflation-related price reductions, our volume mix growth is on track with a five-point compound growth rate, demonstrating the strong fundamental resilience of our portfolio overall.
Executing on this organic growth algorithm reshapes our business over time, systematically accelerating our portfolio mix shift into these high-value categories. This next slide here demonstrates how that shift delivers over the next few years through 2030. For this, we assume the organic growth rates on the previous slide that we have talked about, coupled with our base business growing in the low single-digit range. With these assumptions organically, our high-value category should expand from roughly 45% in 2025 to roughly half of our revenue by 2030. The core takeaway here is structural. As high-value categories become a progressively larger portion of our overall mix, they systematically elevate the company's baseline growth rate, delivering continuous strong top-line growth for Avery Dennison as a whole, while directly driving structural margin expansion over time.
This organic trajectory forms our baseline, but our strong balance sheet and proven capital deployment playbook give us the financial capacity to accelerate this mix shift through disciplined M&A as well. On the next sheet, you can see we are sitting comfortably within our target leverage range today. Over this cycle, we have roughly $8 billion of investment capacity in the next five years, and that is backed by strong, robust free cash flow generation. We deploy this capital through a consistent discipline framework. Reinvesting organically with roughly half of our internal CapEx directed towards high-value categories, returning capital to shareholders through our growing dividends, and leveraging a flexible bucket for opportunistic share buybacks and strategic M&A. As you see in the right side of this chart, our M&A strategy is laser-focused on acquiring or investing in attractive high-value categories where we are uniquely positioned as a high-value owner to accelerate growth.
Over the past several years, we have demonstrated this discipline across our platforms, expanding Intelligent Labels through Smartrac, TexTrace, and the Wiliot investment, building out Vestcom and Embelex through acquisitions, and strengthening performance materials with the Taylor Adhesives acquisition. These transactions are clear examples of how we systematically find high-return opportunities across our categories, which we will continue to pursue moving forward. Ultimately, our disciplined capital allocation framework reinforces our portfolio mix shift, driving outsized growth, expanding margins, and delivering top-tier total shareholder returns over the long term. To wrap up, our high-value categories continue to serve as a primary growth engine for Avery Dennison, driven by strong market growth, competitive differentiation, and a disciplined capital allocation strategy. We remain confident in our ability to deliver on our long-term financial targets. Thank you all again for your interest in Avery Dennison.
We'll be happy to take your questions as we get everybody back on stage.
Have a chair.
It's easier talking than getting the coordination right on the seating. So bear with us, everyone.
All right.
All right. Well, thank you all for your attention so far. We'll now move to about a 30-minute Q&A session. Before we do, just a few quick reminders. First, on the scope, we won't be taking questions on currently quarterly performance or our 2026 financial outlook. We will be doing that on our Q3 call coming up in about a month. Second point is, we kindly ask that you keep your questions focused on today's strategic topics. The teams have put a lot of work in here, and so we want to focus on what they presented. Second, I'll keep the session moving smoothly. Please raise your hand, and I'll call your name. We have two mics. Sarah and Emily will find you, and then you can begin your question once they have brought you the mic.
Please state your name and your company first, and limit yourself to one question and one follow-up, and we'll get to as many questions as we can in, and there'll probably be plenty of time for follow-ups after that. So with that, let's kick off with the first question. Go ahead, George.
Thank you.
George Staphos, Bank of America. Thanks for the presentation details, everybody. It's great to be here. Two questions. A couple of years ago, when you did your analyst day, the total addressable market for IL was roughly 350 billion units. Right now, as we see the presentation, it's also 350 billion units. Can you talk to us about how the market has evolved over the last couple of years within those categories? Recognizing opportunity isn't a snapshot, this is growth, why hasn't the market improved or increased? That'd be question number one. Question number two, again, we really appreciate all the dialogue on high value. It's growing, mixing a little better. For every segment, it seems like margins are higher than the company average.
Yet, when I look at return on capital, which is not EVA, but if I look at basically EBIT or EBITDA divided by your assets since 2020, it really hasn't moved. Again, no one's done better on return on capital EVA over the last 30 years than Avery Dennison. But why is that the case? Has the capital intensity of these high-value categories increased, and so you're getting more growth and more margin, but it's costing more to get there? Any thoughts there would be great. Thank you.
Francisco, will you address the first one, and Greg, you handle the second. Okay?
Sure. Happy to. Thank you, George, first of all, for the question. When we look at the total addressable space, we obviously are pulling together the overview of what we think to be everything that can be addressed within the serviceable space, as we call it. When we bring that together, we obviously see some of the trends of what's happening in the spaces. If you look into the apparel space, it typically trends within GDP. There could be small variations within that, but in the bigger picture of things, we don't really go category by category and adjust it as such. Another example of that that you'll hear later on is we're actually expanding the portfolio. You heard us talk about the investment in Wiliot.
That does expand a little bit, but on the bigger picture of things, it is a number that is not really relevant from saying it's a couple of billion more or a couple of billion less. We just feel that it's consistent from a total opportunity perspective.
George, let me just add, typically, markets will grow depending on the end markets, and how they grow. GDP plus, less than GDP. Part of our assumption is that whether it's 350 billion or 362 billion, it's
It's big enough.
It's big enough. That's the point of this at the end of the day. I think we have a long runway ahead of us, and our conviction is, given our position, given our innovation, given our teams, I think we're ideally positioned to take advantage. Our objectives remain the same. We want to continue to be the majority provider in all RFID markets, and we've, as you know, invested ahead of the curve to create the adoption mechanisms in many of these markets. Because my view has consistently been that when these markets do drive adoption through cycles, we're going to disproportionately benefit from that.
Yeah, I think on your second question, George, I don't think anything's changed on the capital intensity, the kind of organic capital intensity of our business over time. Certainly, we've been investing ahead of the curve, and we've talked about that in Intelligent Labels and building that capacity over the last number of years. But outside of that, I don't think there's much of a difference from an organic perspective. However, in the last five years, we have done a number of acquisitions. Obviously, we acquired Smartrac late 2020 and then Vestcom, a number of Embelex acquisitions. We closed on Taylor Adhesives at the end of last year. So we have been adding capital investments into the acquisition space, and it takes a couple of years to regain that from an ROTC perspective.
I think we're still on the right trajectory there, and we feel good about what we're delivering now, but to continue to see upward momentum on ROTC over time.
Thank you.
How about John?
John McNulty, BMO. Can you help us to think about the high-value category in aggregate from a margin perspective, where it was maybe five years ago? And when you look forward over the next five years, does that margin profile improve because of the incremental value add? Does it come down a bit just because you target broader and broader markets? How should we be thinking about the trajectory of that over time?
Yeah, let me start, and then Greg can weigh in as well. I think over the last period that you referred to, we've seen slight margin accretion across those high-value categories, large as a consequence of some of the innovation that we've bring to bear.
As we look forward, all things being equal, John, given our innovation, given our position, we should see more margin accretion over time in that. But we're also investing ahead of the curve, for example, in IL. And so there's going to be a point at which, it's not going to happen for the next while anyway, but as we invest ahead of the curve, whether it's in innovation or particularly, let's say, in IL and those assets and so forth, you're not necessarily going to drive the incremental margin that you'd expect until you then get scale leverage out of those assets and time as well. So that's the way I'd think about it. On aggregate across the portfolio, they remain higher than the segment and company average.
There are individual pieces, I've talked about this before, within each high-value category, which may be slightly less margin, some slightly higher, it depends on the differentiation. But on aggregate, they typically all are across the company average higher.
Maybe just as the follow-up, on the food side for IL, sounds like came in a little slower than maybe you'd hoped, at least relative to a few years ago. I guess, can you speak to the interest and the excitement that's picked up since the Walmart and Kroger moves and, is there any metric, whether it's whatever the top 10 grocers that you can speak to in terms of pilot penetration and traction there? I guess, can you help us to think about where that growth trajectory is going and how it's accelerating?
Francisco, you want to address that?
Yeah, sure. Happy to. First of all, let me start by saying we continue extremely confident in the value that we are able to create within the category. You heard me say earlier on that we saw our pipeline expand by about 40% from prior year to this year, which obviously means that we have a number of pilots and initiatives, which is significantly broader. We typically don't talk client by client and region by region. But I would say both in North America and in Europe as main focus areas where we are seeing significant progress and data that allows us to, again, reinforce that. So we have both initial roll-outs that are starting to approach and the number of pilots that continue to reinforce that belief.
And that typically addresses what I have said earlier on about typically freshness and efficiency and those two elements as being core elements from a value perspective.
I think, John, the only thing I would say is, I have always been pretty clear of view on this that the first customer that you get in a new segment is useful because it proves that there is an ROI of some sort. The second one is actually strategically important because it means that within that segment, there is ubiquity of that solution. The third one really says that the flywheel is now starting to drive from adoption perspective. And our job is to make sure we are getting that adoption cycle going quicker. So there are a number of improved pilots that we are seeing, the trials, some of the roll-outs. I think they are all adding to the overall momentum sense. My conviction in this area has really grown even more over the last couple of years.
I'm frustrated that we haven't actually delivered on the growth over the last couple of years for some of the cyclical events. But my conviction level is very high, particularly in food where you can see a compelling ROI that the retailers are consistently feeding back to us as well.
Let's go here to, let's go with Mike.
Thanks, guys, for the presentation. It's extremely helpful. Two quick questions. A couple of years ago, you mentioned in Intelligent Labels organic sales growth rate around 15%. I wanted to see whether that still is intact, were there any changes to that growth rate, particularly that you've fallen short the last couple of years. I think Greg mentioned maybe in the next couple of years you're only going to drive high single digit growth. How do you get back to that 15%? Is that still the correct target? If it is, when do you think you'll get there? Just from higher value categories growing mid-single digits, I think you said you expect some acceleration in that mid-single digit growth rate as well. When should we expect to see that? Is it two years, five years?
When should we see those categories start to really accelerate? Thank you.
Yes. Mike, on IL, Greg was clear in this. In this five-year cycle, we've only seen mid-single digit growth, not what we'd anticipated the first three years. Our current view is that we will assume that by the time we get to the end of the five-year cycle, you're going to be at those kind of high single digit rates. The math on that would imply somewhere around double digit growth over the next couple of years, and that's where we see it to be. I think in the long term, what I would say about IL overall is my learning has been that while the market size and the opportunity is significant, we're going to continue to see some episodic gyrations.
Those episodic gyrations are either adoption related in the sense that you have a couple of customers go one year, the next year there may be only one, and you have this up and down performance. The second thing is just what the macro environment may do. If we have more of a challenging macro environment, it certainly impedes some of our business as it relates to, for example, apparel, even maybe some of the logistics piece as well. We feel good about where the direction of the business is. I'm confident that as this adoption cycle increases, the flywheel gets going, we're going to see the other piece that Francisco talked about, which is at the end of the day, a lot of AI modeling relies on accurate data. That's really what it is. Accurate data, AI drives much more insight and actionability.
But if your data is not accurate, it's really tough to drive action and insight. I actually think AI is going to be a catalyst for more item level identification right from the source. How a product was made, why it was formulated, where it came from, all the way through the supply chain to retail, and then ultimately to the end of life at consumer level as well. Remind me of your second question. Sorry, Mike. Just want to make sure.
I guess, in terms of do you expect to hit that 15% target? It sounds like you do, but it's going to be something-
It's going to be very lumpy. There will be years where it'll be more than, there'll be years then it'll be less than that, Mike. That's the way I'd present it.
But probably in the near term, given the fact that you're expecting that high single digit growth the next two years.
The math would suggest you're going to have to have double digit growth as we go through the next couple of years. Yes. And that's what our conviction is around that. I think as it relates to HVCs, I think your question was around growth of HVCs specifically?
Correct. The last couple years, obviously, it seems those categories are more in mid-single digits.
Yeah.
Should we expect at some point for them to grow higher than mid-single digits soon?
Yeah.
It seems like you're pursuing on various initiatives among the different segments to drive more pronounced growth. When should we see that growth actually start flowing through?
I will answer that by saying, I think we've made really solid progress in the high-value categories. You can see the market drivers to this and our competitive position. We've been growing mid-single digits. Clearly, we have an ambition to do more of it as we take share, as we deliver our innovation. But I wouldn't necessarily say that is going to be manifest in a particular period. I think for us to say that we're going to grow mid-single digits for now moving forward is a very good baseline to have. And if we outperform that, great, that'll be fantastic as well.
Let's go over here to Josh.
Hi. Thanks. Josh Spector from UBS. I had a couple questions around the performance materials piece. I think if you go through all these presentations, the market share is 15%, 20%, 40%. Performance materials is about 2%. I was wondering how you could talk about how you approach acquisitions and growth in that market overall. Is there a higher hurdle rate you take to M&A in that area because of the lower market share and perhaps more volatility? The last thing on this is more just some of those and even what you talked about with solutions, it is more adhesive technology. It is not really a total solution like a label or maybe some of the tagging and branding in the solution side. Why does all that fit together in what Avery Dennison is trying to do overall?
Danny?
Yeah. So on the first question around M&A, I think like I said, we are looking for companies that will basically enhance our capabilities today and that we are high-value owners of. If you think about the market, it is when you are saying it, the share is low, and it is true, we are operating from a modest share position. The really important thing is to look at the application-specific share. So the market, while it is large, it is fragmented within specific applications. There are niches, and that is the application expertise, and there the share concentration looks a little bit different. For example, the Taylor acquisition we have done, we have acquired a leader in the flooring adhesive space that is actually providing us with a significant share within that application.
I think the way we are going to look at it forward is looking for specific application leaders in areas that, when we acquire them, provide us with a significant position within that specific end market or application, et cetera, that we are looking for. On top of it, we are looking for things where we can add value or they can add value to us. For example, again, on Taylor, it was the technology around adhesives that we can basically enable what Taylor is doing in a better, faster way, as well as procurement, because we are backward integrated into acrylics, and they were a bigger customer of acrylics. So those are kind of the elements that we are looking for. I think the second question that you said around kind of the adhesive element, and it is not a solution, I would argue that it is critical.
If you looked at everything that everybody talked about here, adhesive is a critical component of actually enabling that solution. So while it is not a solution on its own, it is a critical enabling technology that we have a unique expertise in, and we are backward integrated into it, which is different than many of our competitors. That provides us with a unique position to actually win and create superior value in those opportunities.
Yeah. Let's go to Jeff.
Jeff Zekauskas at JPMorgan. I think I might try the acquisition question again. Some of the other adhesive companies have acquired in medical adhesives, and medical adhesives, I think, is very much a pressure-sensitive adhesive technology. Various companies of various sizes and various geographies have been available, but it seems that that's been a market more recently where you've not had an active interest. Why is that?
Let me start off by saying, Jeff, we actually do maintain a fairly healthy M&A pipeline.
Sure.
Across all these. I wouldn't necessarily comment on any opportunity that we're looking at now, but certainly in the context of the way Danny framed it, I always think about this, that ultimately M&A is just an expression of a strategy. So it has to be in support of one of our strategies, which you lifted over. I think the second thing for me is it typically has to be in one of our high-value categories, which adhesives is, and we have to be the high-value owner. So we need to bring something to that. I always use the example that we could go buy a completely remote type of business of which we have no expertise. It'll be high value, but we don't bring anything to it. We're not a financial buyer.
We're here to make sure that we're delivering value in the way that we are set up and for the markets that we serve as well. As it relates to medical adhesive technology, a lot of it is pressure-sensitive, but some of it is not as well.
Sure.
The way I think about that is if we can find clear examples where we can bring differentiation in that market or where we can add competency and capability to that through vertical integration, acrylics is an example that Danny quoted, then certainly they are on our watchlist as well. You know yourself, some of these assets don't always become available at the ideal times as well.
If I could, one thing to add, at the right price, too.
Yeah.
Thank you.
Up front, William?
Yeah, up to Hillary.
Hi. Hillary Cacanando from Deutsche Bank. My question for Danny. You mentioned the addressable market is $20 billion. Where do you see the largest opportunity to gain market share out of the $20 billion? When you look at your current end markets, which market is under-penetrated right now where you see good opportunity for the next five years or so?
Yeah, I think in the showcase, you'll see some examples of building and construction, in general, UV warm melt and what that can do, as far as opening new opportunities for us as well as replacing solvent. You'll hear some things from the Taylor team around what we can do in flooring. I wouldn't call it there is one place. Like I said, it's a pretty broad and fragmented kind of place, and we are looking for opportunities where we have unique capabilities. In flooring, for example, we're trying to drive more. In building construction, we have some unique capabilities that we're trying to drive more penetration, et cetera. That's kind of how we're looking at it. The market is, like I said, it's very large and there's many opportunities.
What we are looking for is places like Deon mentioned, where the value is high, so the value that we can bring is high, which will allow us to capture premium margins and where we can have unique capabilities. Today it is through kind of a purchase incentive adhesives. We are adding to the portfolio through the acquisition of Taylor, and that is kind of another lens that we are looking from an M&A perspective.
Got it.
Think about our performance materials business as both liquid adhesives in certain segments and performance tapes as well. So we have historically a relatively good-sized performance tapes business where we are leveraging our traditional technology and skill and capability, including vertically integrated adhesives, to provide what I would call utility beyond the label. So we provide performance tapes that go into brake shoes. They hold and replace mechanical fasteners, but they also provide noise vibration and sound dampening as well through the adhesive construction. So it is the combination of these two things that really matter for us as well in terms of really identifying an application, finding a way to solve for it using a material science ability, and then getting that stickiness that comes out of really being specced in for a very long time as well.
A question on sustainability. It seems like there is a huge sustainability push in Europe, right, with PPWR and DPP. Are you seeing anything similar in the U.S.? It does not seem like there is any type of regulatory push, but maybe from the consumer, customer-driven side or anything like that, anything similar that provides you with opportunity in terms of sustainability?
Mariana, why don't you talk through Europe, but also give some input into what you're seeing in the U.S. as well, and we can follow it then.
For sure. I am leading the European business, so I will speak a little bit through that lens. This is a central part of our strategies, right? Over the last several years, PPWR has been a center focus for us in terms of the development we have had to do and innovation with material science to bring products that enable circularity. I think one of the things we are seeing also is how we can continue to add value not just as a material supplier, but also helping navigate through the very complex environment that we are living through, in terms of regulation and the evolution of this regulation over the next few years. We see that we are, in Europe, definitely leading from a global standpoint, and I think that is giving us definitely a position of advantage overall in terms of our global positioning and on sustainability.
I think the trends that we see in North America are a little bit different, but there are a lot of signs there in terms of how certain states or certain end users, CPGs, et cetera, are putting, still, sustainability at the forefront. Really how we view it is we have got a perfect place in Europe to be able to advance this and accelerate, and then with our global footprint and ability to translate solutions from one place to the other, that position as well for being able to be ready in other places in the world like North America when these trends continue to happen.
Good. Do you want to talk about DPP, maybe between yourself and Michael, just give a perspective?
Sure. Maybe if I may just build on the North American comment. One of the things we see is, I think I mentioned earlier on the brief speech that we have an inlay from an Intelligent Labels portfolio perspective that has been approved by the Association of Plastic Recyclers, and that is a big deal, and it is a requirement in many states, call it California and several others, and it is increasing. So it is coming. Is it coming at the same pace and at the same sort of focus as Europe? Probably not, but it certainly is coming and it is increasingly becoming important, and we are the only one that was able to create an inlay that allows you to do that, so it does not pollute the recycling stream from a PET perspective, as an example. So it is important, will continue to be increasingly important from that lens.
Yeah, I think the only other point on North America is there are certain states that are pushing a much different agenda, which will require the apparel retailers and brands to comply because they do not segregate product by state. So there will be requirements that California may apply that might spur a brand like Nike to behave differently or Walmart. So I think we do see that coming as well. As far as DPP, I think that is definitely a platform where we are suited well to play in. The vehicle of choice will be that transition from a care label into this DPP label. Obviously, we have a strong business in that space. We also have a strong foundation of digital with what Francisco has built with atma.io, and so it is a natural place for us to play and it is something that we are driving actively with most of our brand customers.
I would say at the high level, if you took a step back, sustainability for us is still a significant value creation opportunity. There is both the stewardship requirement in terms of what we do around the world, but it can create significant value for us, not only from a cost reduction perspective, our own greenhouse gas reductions, efficient operations, but also in terms of the way we engage customers. And I think we are just starting to see the start of that. Led by Europe, but certainly here in the U.S. as well. We also have, so later on, if you have an opportunity, Michael Colarossi, if he puts his hand up, he leads sustainability for us globally as well, so he can also talk around some of how the applications around PPWR, DPP, EPR are going to come to bear in these markets. It is a useful reflection point as well.
How about over here, Matt?
Thank you. Good morning, everybody. Matt Roberts with Raymond James. Thank you, everybody, for the presentation. I think first, Ned, you have been quiet over there, so let me work you in here. On Vestcom, I believe the slide said the growth rate was low single digits. I think digital media growing at low teens. So what explains the variance there from the category as a whole? And maybe on that business, how much is hardware versus solutions? And the second part of the question, if I could try to make some parallels or differences between that business and Intelligent Labels, how does the competition compare specifically for hardware players versus Avery Dennison that has a full suite of services?
Then maybe for both Vestcom and Intelligent Labels, as a new program, new category, or new customer starts to roll up, how does the margin profile or life cycle compare? Is there a certain timeline to where you reach a system average? Is that due to just rolling out the program with a new customer or a period where you have outsized share? I imagine there are certainly differences between the two businesses, but any parallels you all could draw as well would be great. Thank you.
There were a couple questions buried in there.
Matt, that was like five questions. That was like five questions. All in one breath, though. Impressive.
I will do my best to hit all of them, and if I miss one, let me know. Let me start with the competitive landscape, which was one of the questions you hit on. In the ESL space, essentially, there are four large global ESL hardware players. As I discussed, our storeLink software platform, we have intentionally built to be hardware agnostic. So we have interfaces with all four of those hardware players. So whichever hardware player or retailer wants to adopt, our software platform can manage and execute that solution with excellence, and we think that puts us in a really compelling, strong position there as we go forward. In terms of some of the market trends overall, obviously, we quoted some specific data around in-store digital retail media, which has significant growth rates.
Across the in-store media landscape overall, we're seeing significant growth driven by the continued growth and power of retail media networks. As retailers have found they can generate much higher margins through alt revenue streams like media and data than they can through selling products to shoppers. Retail media networks have become an increasingly important part of their portfolio. Within that retail media network, there's a portfolio of solutions that address the traditional marketing funnel of upper funnel, middle funnel, lower funnel. I would argue we got the best solutions in the business in that lower funnel to drive conversion. As brands are investing to build awareness, generate purchase intent, they then need to complement that by investing in-store with us to drive conversion and get that item ultimately in the basket.
Through both our analog and emerging digital solutions, we've got really effective media solutions to drive that conversion and help round out that spend, and generate really high incremental return on ad spend for their media investments there. Not sure if I hit all five questions.
I think the only thing I'd say, Matt, on, it's such a unique business. At the end of the day, when the consumer steps into store, unless they have a very strong brand loyalty for brand X at the shelf edge, they're making their moment of truth decision based on what they see in front of them. I do think that as retail media networks have grown, they've also started to realize the power of that moment of truth decision in front of the shelf edge. We're uniquely positioned to help facilitate that.
I think, Ned, correct me if I'm wrong, a lot of the data that we've seen about shelf edge promotional activity versus let's call it traditional above the line or through line, kind of media and then trade marketing effectively, the return on advertising spend is disproportionately higher when you get to the consumer at the moment of truth, and that's what we have a unique opportunity to facilitate as well.
As you might imagine, using data and analytics, we can derive very tight correlations between investing in that media and incremental sales. We invest heavily both through acquisition of data and analytics to provide that receipt for services back to our brand partners to say, "You spent $1 with us, we put $3 back in your pocket." That's a good day for them every day.
Maybe, Ned, the question Matt asked was also just what's the kind of margin profile? You start a customer midway through, and then I'll talk about that, or Francisco can talk about IL then specifically as a differentiator.
Yeah. So our margin profile's pretty steady as we ramp up a customer. As we take on a new customer, we will invest ahead of time to fund a pilot to quantify the value that we create and make it a really easy decision for that customer to adopt our solutions. So we'll invest ahead of revenue to make that happen. Once the revenue turns on, the margin profile for us is pretty steady. Maybe bridging to the IL piece, one of the things I'm excited about, my team's excited about is because we have relationships with 70 of the top retailers here in the U.S. marketplace.
We're in a really unique position to open doors and engage in dialogue on our IL solutions and bringing those to life, particularly with our grocery retailers and activating solutions in the perimeter. We're starting to get some really strong traction with our grocery retailers and supporting Francisco and his team to unlock those doors and get those pilots rolling and eventually get the revenue turned on with those programs.
Yeah, maybe just on the margin profile from an IL perspective. Thank you, Ned. A couple of comments. So one is when you're innovating for a new application, you know you have some inefficiencies as you ramp things up. So over time, if you're really doing something fundamentally different, it is normal that you would see an an improvement over time, as you would with anything which is new and where you are particularly innovating. Then obviously, you have the flip side of that, which is when you're not innovating and you're providing a more, call it, standard solution, you obviously start to see more competition come in. So I think it's a bit of a mixed bag. Our position is always that we need to be ahead of the company average.
That is as a company, our commitment, and that is the way we manage it from the portfolio perspective, if that makes sense.
Thank you all . I think you hit on all of them.
Thank you.
If you did not, I forgot them myself.
Let's go over here to John. John, do you have six questions to ask?
I will do my best to keep it tight and start off by saying thank you, all. I appreciate all the information. It is great insight into all the high-value categories. Francisco, I want to start, I am trying to get a better sense of the 40% improvement in the pilots. Does that include any part of the Walmart business that you guys have announced or are starting to ramp up on? Included in that, is it coming from grocery peers that you are looking to convert and doing some testing in? Is it new categories within the stores? Then tangentially, maybe you can just talk about how long it takes to monetize some of these pilots. I realize that it is very different early on in the penetration versus some of the harder end markets like logistics with first mile. But maybe just touch on that.
Yeah. So maybe if I may just starting from the beginning. When I mentioned the 40%, roughly, improvement from a pipeline year on year, that is most of it driven by new logos, if you would like. It has some expansion in existing logos. As an example, if you are working with a retailer and you have done bakery, and now you have to do a fundamentally different solution, which requires the innovation I have mentioned that we have developed into, say, protein, which has high moisture and different solutions from a stackability and breathability perspective, that we consider as a new opportunity from within that same logo. It is a mixed bag, but it is primarily driven by new logos that we have been able to drive new pilots with, both in North America and Europe.
Got it. Then, I realize this is maybe a little bit of an unfair question, but just thinking over the next couple of years, instead of just through the cycle, and we have seen what the CAGRs look like across all the high-value categories. But just thinking about the next couple of years, can each of you walk through maybe some of the puts and takes to think about in terms of performance relative to those past five-year CAGRs? Some of the bigger wins obviously become headwinds going into next year and as you are lapping them. But maybe between some of the headwinds and some of the things you are more excited about that could push growth over that five-year CAGR target, just looking out to 2028 would be helpful.
Well, maybe start off, then I will ask a couple of the individuals to also go through that. I think I was fairly clear on this. We see historically mid-single digit growth. Our assumptions moving forward will be at that or above as we move forward from here, and that will depend on our execution, our innovation, and so forth. When I think about the individual piece of the business where we may sometimes have an event like World Cup and what happens when you lap that, part of the drive that we have at the moment is we need to make sure we are driving new innovation to market quicker so that when we get to those points, we can offset that with new customers, new solutions, and applications.
I would not say at the macro level, there is any one of these that we have a deleterious effect on, let us say, next year or the year thereafter, because typically, we are able to offset that with other growth opportunities. The World Cup is a good example of it, a significant World Cup bump last year. But this year, Michael and the team were able to offset that with more customized activity that happened actually in the market after that as well. You can see balance in this, that there may be individual pieces by quarter-on- quarter comparison, but generally overall, our ambition is to continue to make sure we maintain that kind of 5% growth plus as we move forward from here. I do not know if there is anything specifically in Graphics and Reflectives we want to think about.
Sure. If you remember when I was talking about, we have specifically prioritized our focus around the automotive aftermarket and OEM segments. We continue to see growth in that space, particularly with our new technologies, which we will be happy to walk through in the showcase afterwards. But when we talk about people are continuing to personalize and customize their vehicles and also looking to protect their vehicles, that is a potential large opportunity for us, not only in aftermarket but also in the OEM space. I think that looks really promising for us in this space.
Michael, maybe just on Embelex?
Yeah, I think you mentioned World Cup. I think that's a great example of where our acquisition strategy has built up new capability. Traditionally, World Cup would have been an event for us where we had a dramatic improvement in revenue based on offshoring and when garments were being constructed. Now there are new capabilities, we can actually also do the onshoring piece of it and do the in-event monetization. Traditionally World Cup would have been a big headwind year two of the event. This year it was an equal size event. You take that capability we've built, and now we think about Olympics, and we think about Euro 2028, and we think about all these events globally.
We have a different capability to bring to market to do both those sides of the offshore and the onshore piece, which is something the team's going to drive going forward.
Thank you very much.
Let's go to Josh. Right in the back.
Hey, guys. Maybe just to expand on that HVC growth question. I am curious, the last number of years, your customers have really focused on premiumization, whether it be through product introductions, SKU focus. Now that dynamic is at least directionally maybe going towards affordability, just given what is going on in the world right now, how do you guys think about that in context of your growth targets in HVC going forward? Does that pose any sort of risk to that?
I will let the team weigh in. But for me, Josh, at the highest level, I think all of our HVCs are fundamentally anchored in what I think we talked about, which are the long-term secular trends, the digitization of industries and items. Irrespective of whether this is an affordability issue or premiumization, that trend is, I think, personally unstoppable, and it is going to continue. If you think about personalization, the me in the physical product, the consumer experience that they want to have, this cuts across all demographics, and it cuts across all affordability levels. So while there may be a choice that people have to make, particularly if it is discretionary, I do not think you necessarily see that trend changing. Then sustainability, I think, is going to be at the heart of the trend that is going to continue to drive moving forward.
It is going to challenge industries and businesses to be more effective in resource allocation and resource utilization. Again, I do not think that changes by the cost of a particular component or the economic cycle at any one time. Now, at the broader level, are there specific things and individual pieces of these high-value categories that may drop off slightly if there is just an affordability issue sitting on the table for, let us say, the next year? Maybe. But I think it is de minimis. It does not fundamentally change the trajectory of the activity we are doing or the innovation we are trying to bring to market at the same time.
Yeah, if I can add, some of the innovation we are trying to bring, even in the high-value categories, is stuff around lower cost ways of getting the same value or even more value. So I give the example of the wall mount in adhesives, but even in the graphics in the automotive aftermarket, part of the work that we are doing is how do we make the install faster? Which is the highest cost of the install of a wrap is actually the cost of the labor. So if we can speed up the way with the material science that we have, if we can speed up the time that it takes the installer to install an item or a wrap, then that makes it more affordable, quote unquote, and allows us to win share.
I think there's all these elements, and there's so many different applications the different businesses are going after that I think to Deon's point, there's both ways, but we're targeting both sides of the equation.
Final thing I'd say, Josh, is if you just think about what we're trying to do with high-value categories generically across them, is trying to identify a unique customer or industry issue, and then creating a solution which addresses that. Which means, by definition, that customer or that industry is getting a return on investment. It's kind of the discussion we always have around IL. Is the cost of the tag an inhibitor? Not if you're creating enormous value from either reducing labor, increasing speed, then it's not the determining driver. It's the ROI that customers get. And when you move the dialogue to that piece, it becomes a much easier discussion around moves the things away from cost, affordability, price, et cetera. Not always. There's always going to be procurement departments.
That's their job at the end of the day, but that's largely where we're trying to orientate many of our high-value category approaches.
All right. Let's take two more questions. Let's go with Silke.
Thank you. There was no discussion about the logistics piece in IL. Can you talk about the logistics piece and do you see anything in the pipeline? Should it be growing? Is it flattish? When you look at exiting the year at a high single-digit growth for IL, how much of that is really volume and how much of that is mix when you get to 2028? Thank you.
Francisco.
Yeah. Thank you for the question. A couple of things. Logistics, we continue to see a number of initiatives, pilots, and smaller, I will call them roll-outs, so very application-specific. That gives us confidence that things will continue. We obviously have a very large player in the space that has been very vocal of the value they see from it, so we are very confident. We have a number of pilots that gives us confidence that we will see that.
These are big moves that imply significant transformation, and as such, their timing is not always the one we would expect, to Deon's point earlier, and the sort of somehow frustration that we have that we have not been able to push it as hard as we wish, but the confidence is absolutely there, and we are confident that will happen primarily in North America with the large players, but also we are seeing traction now in the European Union. I am confident that will be a space that we will continue to push.
There was a second question, Silke, and I cannot remember what it was.
It was on how much is the volume
Volume.
Volume versus mix.
Volume versus mix
Volume versus mix.
From a future growth perspective?
Yeah. As you get into 2028, when you get to your high single-digit exit growth rate, how much do you think is volume contribution? What is mixed contribution from selling a higher value label?
It is mostly a volume, meaning it is mostly driven by new initiatives. Now, those initiatives have a different impact, right? When you look at our portfolio, you mentioned logistics. Logistics is typically a lower ASP product versus call it an embedded apparel product that we use in Michael's business where the ASP is significantly higher. Overall, I would say it is primarily volume driven. Within that volume, there are different impacts that different programs have.
But generally volume is growing faster than revenue within Intelligent Labels.
Yes. Absolutely. Volume grows ahead of revenue. Yes.
All right, back here.
Hi, good morning. Bryan Burgmeier from Citi Research. Thank you for taking the question. Just going back to Vestcom really quick. Can you give us a sense maybe of the penetration rate for the ESLs versus analog? What is that now and maybe what do you kind of assume or expect that could reach by 2030 and does that sort of evolution over time contribute to the margin profile or is it pretty static throughout as you've said before? Thanks.
Yeah. As I mentioned, our business is very U.S.-centric today, so my answer will be a fairly U.S.-centric answer as I go about the market dynamics. What we see in the market, the U.S. market today is predominantly analog, migrating towards digital, as you might imagine, but it's not a uniform migration by channel. What we see is in larger format stores, predominantly grocers and mass retailers that want to have a larger store, e-commerce is a bigger part of the store, et cetera. There's more labor savings opportunities. The ESL business case is stronger there. Conversely, small format stores, drug, dollar, et cetera, that are often labor constrained and can't pull labor out, the ESL business case is not nearly as strong.
As we think about adoption, what we are seeing, and I think we will continue to expect to see in the U.S. marketplace is those larger format retailers adopting at a much higher rate than what you see in the small format retailers where the ROI frankly just does not pencil as effectively. As that happens, frankly, it unlocks new revenue streams for us that we have not had before. We now have revenue streams from Software as a Service that did not exist very recently, and excited to continue to make that an integral part of the ESL solution for those retailers who do adopt and unlock, frankly, new revenue growth for us there that we are excited about.
All right. We have time for one more. Why don't we go with George to close this out?
Thanks very much. George Staphos with BofA. Two questions, primarily on Intelligent Labels. To the extent that everything we read about, diesel costs are going up, freight is going up, cost of manufacturing labor is going up. There has always been a cyclicality to the adoption cycle with IL that we understand in terms of capital dollars, but it would seem like this kind of environment might be an environment where you can actually accelerate adoption even though the cyclical tailwinds are not what they need to be. How do you think about that, Francisco and Deon? Is there an opportunity to maybe increase or accelerate adoption relative to where you would normally be just because the cost of doing business is a lot more challenging than used to be the case? Question number one. Question number two, just for Bethany. Bethany, thanks for your presentation.
Can you talk about the share trends within your markets and whether you are gaining or keeping up and what is particularly helping you in the market? Again, share trends within graphics and reflectives. Thanks very much, everybody.
Okay, Francisco.
Can you help me out? Because, sorry, I got lost, George. I was listening to Bethany and-
No, just some of the macro drivers around-
I think, yeah. I remember now. I apologize.
Basically, yeah.
I think there's two things at play there. One, obviously, as you said, in theory, if you have labor shortages and if you have challenges with higher costs and you need to be more efficient, that should drive the need for more automation and more ways of making you be more efficient as such. Having said that, it also creates a level of uncertainty and a level of, I would call capital constraints that people at times are not willing to make the investment that they would otherwise be doing. I think those things at play, we've seen people saying one thing or the other, so it's kind of hard to say that we will see an acceleration because of that macro environment. I think it's a mixed feedback from that perspective.
Bethany.
Anything else?
In relation to graphics and reflectives in terms of the marketplace, the total addressable market I had mentioned was around $4.5 billion, and it is a pretty fragmented space overall. There is no one majority share from a competitive landscape perspective. Nobody has that. We are the number two player in that space. There are a number of different competitors across the board. But I would say we continue to grow. There is tons of opportunity. As I mentioned, our sales in 2025 were around $700 million. So obviously there is significant opportunity for us to continue to grow. And our strategic priority within that automotive segment specifically, as well as our second largest within the corporate branding space, positions us well to achieve that.
Bethany, do you think you are gaining share at this juncture or kind of maintaining?
I would say we are gaining share.
I think also when you look at Bethany's slides, part of that market size she showed includes paint protector film and window films.
Where we historically haven't been that much of a player in versus wrapping films, as Bethany said earlier, we've been in for a couple of decades. I think there's opportunity there for us to continue growing in that area faster than the market, because we're looking to figure out how we can build a bigger position in those markets as well.
Similar true on the reflective side, we're also gaining share just to close the loop.
I think, George, the only other thing I'd say at a high level, you can sense from the team's discussion, [if you heard], what they said, growth for us is a significant focus. Particularly in this more muted macro environment, the challenge we as a leadership team have assumed is that we need to find a way to grow both in the short term and the long term. There's a kind of really focus in the shorter term around saying, are we executing with efficiency, alacrity, and making sure we're really meeting customer needs? That drives share gain, typically, using those levers. The quality of service, the quality of product that we have. We've actually seen that particularly over the last year, we've taken share in most of our businesses around the world.
The second piece of it, which is what we've also talked about, you heard from the team, is just this acceleration of innovation outcomes. Not necessarily innovation pipeline, but let's get to market quicker with new products faster and faster, because it's that that drives differentiation in the longer term, and that then supports the future growth rate as well, and that's the focus for the team overall.
Okay. All right. Excellent. Thank you all for your insightful questions. That is going to conclude our formal presentation. Let me give you a little rundown what we are going to do here. For everyone joining via webcast, thank you from all of us at Avery Dennison for your time today. If you have any questions, please reach out to me directly. For those of you in the room, here are the next steps. Lunch is going to be served next door. Feel free to grab lunch and mingle with us from Avery Dennison. That will be about a 30-minute session, and then we are going to reconvene at the back of the room here for the demo showcase. Your group number is on your badge. The demo stations will be around 20, 23 minutes or so. We are going to go through, there are seven of them. You are going to have a group leader.
Please let the people in the demo presentations get through their prepared remarks so that you can understand what is going on. There will be plenty of time at the end for Q&A. Thank you very much for your attention.
Great. Thank you, everybody.