Avery Dennison Confirms Q2–Q3 EPS Swing From Stocking AI Accelerates Intelligent Labels TAM

EPS headwind timing (Q3 “$0.50 sequential”) and AI’s potential impact on Intelligent Labels TAM

1) Is the “$0.50 sequential EPS headwind in Q3 due to stocking” internally consistent with stocking starting in Q1 and continuing through Q2?

What management said the stocking math was

• Management quantified stocking’s estimated EPS impact in Q2 to Q3 as: “roughly a $0.25 benefit we got from our customers’ increase in their inventory in Q2” and “outlook would be that assumes that roughly a $0.25 headwind in the third quarter”, which they then summarize as “the $0.50 Q2 to Q3 sequential headwind”. ¹
• They also provided a first-half stocking estimate: “We had about a $0.30 impact in the first half” and said their estimate is “$0.25 or so of that comes out in the third quarter” with the remainder a “hangover…in the fourth quarter.” ²

Reconciling the apparent inconsistency

Your concern is: if stocking already began in Q1 (where management referenced an impact) and persisted into Q2, does that invalidate a clean $0.50 sequential headwind for Q3?

Based on the excerpts, it does not invalidate the framing—because the $0.50 figure is explicitly a sequential swing from Q2 to Q3, not the total stocking burden from the moment stocking began.

Concretely:

• In Q1, management cited about a $0.05 EPS impact from stocking that “started really kind of early to mid-March in the first quarter.” ¹
• In Q2, they said they got “roughly a $0.25 benefit” from customers increasing inventory. ¹
• For Q3, management’s estimate is “roughly a $0.25 headwind.” ¹
• Therefore, the sequential EPS swing from Q2 to Q3 is about +$0.25 benefit to -$0.25 headwind = $0.50 sequential headwind, which is exactly how they explain the “$0.50 Q2 to Q3 sequential headwind.” ¹

Does the timeline of stocking “cover” Q1, Q2, and part of Q3?

Management’s narrative supports that stocking was not isolated to Q2 only:

• They described stocking continuing beyond initial expectations: after starting mid-March in Q1, it continued “through…April,” “also through May,” and while June “started to more normalize,” they still expected “a large portion…to come out in the third quarter.” ¹
• They reiterated that it was a “best guess…what we are seeing so far in July” for how it will “come out between Q3 and Q4.” ²

So the correct interpretation is:

• Stocking effects accumulated through the first half (they estimate ~$0.30 impact in the first half) ²
• But the earnings cadence discussion is about when the pre-buys unwind vs the prior quarter’s benefit, producing a sequential swing of about $0.50 from Q2 to Q3. ¹³

Bottom line on the clarification

• Yes, the $0.50 sequential EPS headwind in Q3 is consistent with earlier stocking in Q1 and ongoing stocking activity through Q2, because the $0.50 number is specifically the Q2→Q3 sequential swing (+$0.25 benefit in Q2 vs -$0.25 headwind in Q3). ¹
• Management also ties that to the larger cumulative estimate: ~$0.30 first-half impact with ~$0.25 coming out in Q3 and the remainder in Q4, which matches the idea that Q3 is where a substantial portion of the unwind shows up. ²

2) Will AI be an enabler for Intelligent Labels—or could it enable competing technologies that reduce TAM?

What management explicitly said about AI and Intelligent Labels

Management was unambiguous that AI is intended to accelerate Intelligent Labels (IL), not replace it:

• On whether AI is an accelerator for IL: “Yes…absolutely.” ⁴
• They argued AI enables parsing and inference from the increasingly rich item-level data generated by digitizing item tagging and supply-chain movements: AI helps “parse out and make a lot more sense and inference from that data.” ⁴
• They described a “flywheel” hypothesis: better inference enables more “surgical decisions,” expanding IL-driven ROI, which then increases IL adoption. ⁴

How that affects TAM vs. competitive displacement

From the excerpts, the AI-TAM story is framed as expanding the value realized from IL, which would tend to support TAM growth for IL rather than contraction.

Key rationale in management’s words:

• As IL tags items and generates supply-chain and retail/disposal data, AI can improve decision-making at retail (e.g., make better, more targeted actions), improving ROI and thereby supporting deeper adoption (“flywheel”). ⁴
• Separately, management also positioned AI for Avery Dennison broadly as a driver for internal efficiency/productivity and for accelerating growth outcomes and solving customer problems—again in a way meant to support growth initiatives rather than undermine them. ⁴

Could AI enable competing technologies and shrink IL TAM?

The excerpts do not provide evidence that AI will enable direct substitutes that reduce the IL “pie.” Instead, they explicitly frame AI as benefiting IL-enabled data and expanding the ability to monetize that data. ⁴

However, from an intellectual-honesty standpoint, what the excerpt supports is:

• AI can be an enabler that improves the economics of IL by making item-level data more actionable. ⁴
• The excerpt does not quantify competitive impact, nor does it say AI could “enable competing technologies” in a way that reduces IL TAM; that scenario is raised as a possibility in the question, but management’s answer is directed and positive toward IL. ⁵⁴

Bottom line on the AI question

• Based on management’s answer, AI is expected to be an accelerator for Intelligent Labels, because it improves inference from IL-generated item-level data and thereby enhances ROI and adoption (“flywheel”). ⁴
• The excerpts do not substantiate a contrary conclusion (that AI will enable competing technologies that reduce IL TAM); rather, they present AI as additive to IL’s value proposition. ⁴

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Conclusion

1. The $0.50 sequential EPS headwind in Q3 appears accurate within management’s sequential framework: Q1 had about $0.05 from stocking, Q2 generated about +$0.25 benefit, and Q3 is estimated at -$0.25 headwind, creating a $0.50 Q2→Q3 swing, while cumulative first-half stocking impact is estimated at ~$0.30 with ~$0.25 in Q3 and the remainder in Q4. ²¹
2. Regarding AI, management stated AI will accelerate Intelligent Labels by enabling better inference from IL-generated data and improving the ability to make “surgical decisions,” supporting a flywheel toward IL adoption. The excerpts do not provide support for AI shrinking IL TAM via competing technologies. ⁴