Avery Dennison Corp (AVY) — Q3 2020 Earnings Call Transcript

Thank you, Frank. Please note that throughout today’s discussion, we’ll be making references to non-GAAP financial measures. The non-GAAP measures that we use are defined, qualified, and reconciled with GAAP on schedules A-4 to A-9 of the financial statements accompanying today’s earnings release. We remind you that we’ll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the safe harbor statement included in today’s earnings release. We undertake no obligation to update these statements to reflect subsequent events or circumstances other than as may be required by law. On the call today are Mitch Butier, Chairman, President, and Chief Executive Officer; and Greg Lovins, Senior Vice President and Chief Financial Officer. I’ll now turn the call over to Mitch.

Thanks, Cindy, and hello, everyone. Once again, we are proving our resilience across business cycles. Revenue came in significantly better than we anticipated at the start of the quarter, which, combined with our cost reduction actions, enabled us to deliver 15% growth in adjusted earnings per share and strong free cash flow in the quarter, despite lower sales. We said coming into this year that a key focus of ours in a lower growth environment was to protect our overall profitability. We’re delivering on that promise. Margins expanded significantly in the third quarter, reflecting the successful execution of our long-term strategies, as well as the team's fast response in implementing temporary cost-saving actions in a better-than-expected volume environment. Even with the sharp drop in volume in the second quarter, our year-to-date adjusted EBITDA margin is up 80 basis points to 14.9%. Our strong performance reflects the agility of our teams, which has come together extraordinarily well in navigating one of the most challenging periods we’ve experienced as a company. In this environment, our focus continues to be on ensuring the health and well-being of our employees, delivering for our customers, supporting our communities, and minimizing the impact of the recession for our shareholders. And I’m pleased with the progress we’re making on all fronts. Now, despite our best efforts to protect employee health, we have identified roughly 350 confirmed cases of the virus within our 30,000-plus workforce, with the majority of cases apparently reflecting community spread rather than a work-based source of infection. Fortunately, about three-quarters of the employees impacted have already recovered. While all sites were operational throughout Q3, the recent surge in confirmed cases in a number of the regions in which we operate highlights the continued uncertainty of the current environment, as well as the importance of remaining vigilant with respect to safety and agile in meeting customer needs. Now a quick summary of the business trends: All three segments came in better than expected at the start of the quarter on both sales and margin. LGM sales were still down in the third quarter compared to the prior year, but improved sequentially due to a faster than expected pickup in the global graphics business. Overall, our label and packaging materials businesses moderated sequentially as expected, with North American emerging markets having picked up a little faster than we expected, while Europe came in a bit weaker. From the start of the pandemic until now, volume trends for label and packaging materials have varied by region. From March through September, volumes in North America were up mid-single digits, while volumes in Europe were up low single digits. In both regions, we experienced significant volume surges during the early stages of the pandemic, followed by a moderation of growth due principally to destocking. Now, as we look across this period overall, our North America business has been trending faster than the long-term average for the region, while Europe has been trending a bit below the region's long-term average. The emerging markets picture has been different. Asia Pacific volumes have been flat overall from March through September, with volumes rising in the mid-single-digit growth in the third quarter. While it’s good to see the recent pickup in demand here, this is still below the long-term trend for the region. As for RBIS, demand improved much faster than we anticipated back in July, down only 5% organically for the quarter compared to the roughly 35% decline we saw in Q2. Enterprise-wide RFID sales grew by 65% in the quarter on a constant currency basis, reflecting 20% organic growth and the contribution of the Smartrac acquisition. The strong growth of our RFID business was primarily driven by apparel, particularly within the value segment of the market. Outside of apparel, we continue to see increasing interest in new applications within logistics, as well as food and grocery. Specifically, we are working with logistics companies to assess the technology in light of the accelerated shift to e-commerce with many providers operating at holiday-like peak volumes throughout the pandemic. Given the stress that this has put on supply chains globally, we’re now working with several companies to demonstrate how RFID and related solutions can drive an increase in both throughput and accuracy of their operations. We’re active on multiple pilots in this area and have some smaller deployments already underway. The momentum in food-related end markets likewise continues with increased pilot activity among quick service restaurants, as well as retail, both in the U.S. and emerging markets. These applications are focused on driving labor efficiency and improved product availability. Similar to apparel, the migration to e-commerce for food delivery is strengthening the use case for RFID in this market. Overall, we continue to expand our RFID product pipeline. Customer engagements are now up close to 45% since the start of this year. As these projects continue to move through the pipeline, we continue to expect long-term growth of 15% to 20% as we build RFID into a broader intelligent label platform, which is now a more than $500 million business. Returning to the total company. We entered this crisis from a position of financial, operational, and commercial strength. As I mentioned earlier, our businesses are once again proving their resilience across economic cycles. Our teams are adapting quickly to new commercial and operational norms, responding decisively with best practice safety measures, protecting our profitability in a lower growth environment, and positioning ourselves well to capture demand as conditions improve. So the nature of the macro challenges is different today than in past recessions. Historically, our businesses have continued to deliver solid free cash flow in periods of economic downturn, and sales and earnings have rebounded quickly in the 12 months following. Our strategy remains clear. We are continuing to invest to expand in high-value categories, particularly our intelligent label platform, while driving long-term profitable growth of our base businesses. We remain confident in our ability to continue to create significant long-term value for all of our stakeholders. I’ll now turn it over to Greg.

Thanks, Mitch, and hello, everybody. This year has certainly been very challenging. We’re executing extremely well, as evidenced by our financial results this quarter. We delivered adjusted earnings per share of $1.91, up 15% over the prior year and significantly above our expectations, as end market demand picked up faster than we had assumed in July. Our tight near-term cost controls in this environment, combined with the flow-through benefit of that better-than-expected volume, in addition to our ongoing structural productivity actions, drove strong margin expansion in Q3. Sales declined by 1.3% ex-currency or 3.6% on an organic basis. Currency translation reduced reported sales by 0.5 points in the quarter. Despite the drop in revenue, we reported an adjusted EBITDA margin of 16.1%, up nearly 2 points, and an adjusted operating margin of 13.1%, up 140 basis points. We realized $13 million of net restructuring savings in the quarter, most of which represents the benefit of projects initiated this year. We recorded approximately $11 million of restructuring charges, roughly half of which related to non-cash asset impairments. We continue to target between $60 million and $70 million of incremental net savings from restructuring this year, with roughly half of that in RBIS. We’re also on track to deliver roughly $150 million in temporary savings from short-term cost reduction actions this year, which will be a headwind for us as markets recover. Turning to cash generation and allocation, year to date, we realized $342 million of free cash flow, up roughly 5%, with strong growth in the quarter driven by lower capital spending and higher net income. I’m pleased to report that we achieved our targeted sequential improvement in working capital productivity, particularly with respect to inventory turns. Our balance sheet remains strong with a net debt to adjusted EBITDA ratio at quarter-end of 1.9, below our long-term target range of 2.3 to 2.6. As we've proven our ability to manage through the compounding global crises we face this year, we’ve begun to again put that leverage capacity to work, including increasing our level of distributions to shareholders in line with our long-term capital allocation strategy. We announced today that the board approved a 7% increase to our dividend rate, and we resumed our share repurchase program late in the third quarter. Turning to segment results for the quarter, Label and Graphic Materials sales were down 2.6% on an organic basis, driven by volume and mix as well as deflation-related price. Sales were down roughly 2% organically in Label and Packaging Materials, as growth in specialty and durable label categories was more than offset by a decline in the base business, while Graphics and Reflective sales were down about 8%. As Mitch mentioned, the graphics performance represented a strong sequential improvement compared to the roughly 30% decline we saw in Q2, with steady improvements monthly throughout the quarter. As expected, the overall trend for the Label and Packaging Materials business moderated sequentially following the Q2 demand surge in the mature markets, with improvements over the course of the quarter in all regions. Mitch touched on the overall volume trends by region for the Label and Packaging Materials business since the start of the pandemic. Now looking at the total segments' sales trends by region in Q3, in North America, LGM sales were up low single digits organically for the quarter, with the strong rebounding graphics and LPM inventory destocking largely behind us by the end of July. In Europe, where destocking began about a month after we started to see it in North America, LGM sales for the quarter were down high single digits on an organic basis, with a fairly steady improvement in the trend as the quarter progressed. The Asia Pacific region grew modestly for the quarter on an organic basis as well, and saw a fairly steady improvement in the sales trend throughout the quarter, which was led by growth in China and India. Finally, we’ve been very pleased with the resilience of LGM’s business in Latin America, which delivered mid-single-digit organic growth for the quarter. LGM’s adjusted operating margin increased 170 basis points to 15.2%, as the benefits of productivity and raw material deflation, net of pricing, more than offset higher employee-related costs and unfavorable volumes. Shifting now to Retail Branding and Information Solutions, RBIS sales were up 5.2% ex-currency and down 4.7% on an organic basis. Strong growth in our high-value categories was more than offset by a roughly 12% decline in the base business, driven by overall lower apparel demand. Looking at the total apparel business base and high-value categories combined, the value channel outperformed all other channels, up nearly 50% for the quarter. As Mitch indicated ex-currency, enterprise-wide RFID sales were up 65% and up 20% on an organic basis. The adjusted operating margin for the segment increased by 60 basis points to 12.1%, as the team’s productivity and cost control actions more than offset unfavorable volumes. Turning to the Industrial and Healthcare Materials segment, sales declined 7.6% on an organic basis compared to the 21% decline in Q2, reflecting sequential improvement in trends for automotive applications, particularly in China and North America. The adjusted operating margin increased 110 basis points to 12.1% due to favorable product mix, productivity, and deflation net of pricing, which more than offset the impact of lower volume. Now shifting to our outlook, given the continued uncertainty regarding global demand, we are not resuming annual guidance at this time. As we’ve done since the pandemic started, we’ll arrange an update call in December to let you know how things are playing out. In the meantime, I’ll highlight some of the key pieces of the equation that we have reasonable visibility to now. We expect that the underlying sales trend, that is, organic growth and the benefit of the Smartrac acquisition, will be similar to or better than what we saw in the third quarter. Additionally, as announced back in January, we benefit from an extra week in the fiscal year, which is expected to add roughly a point to our full-year growth rate or about four points to the fourth quarter. This should add roughly $0.10 of EPS to the fourth quarter and full year, which obviously represents a comparable size headwind to 2021 revenue and earnings. The anticipated headwinds from currency translation have diminished as the year progressed. The negative impacts from currency now stand at roughly one point to sales growth and $9 million in operating income for the full year based on recent rates. With that mentioned, we expect to generate restructuring savings, net of transition costs of $60 million to $70 million this year. Furthermore, we're targeting roughly $150 million of net temporary savings, which includes reductions and accruals related to incentive plans. Note that more than 80% of the full-year estimate for temporary savings has been realized year to date. Again, the vast majority of the temporary actions that we’ve taken are expected to be a headwind for us when markets recover. As Mitch said, protecting our margins is a key focus for us during this period of slower growth. Assuming we continue to see stability in our end markets, we're now targeting to deliver an adjusted EBITDA margin for 2020 that exceeds the prior year. You may have noticed also a modest benefit in the quarter from a lower tax rate, which reflects our current full-year adjusted tax rate estimate of approximately 24%, in line with our long-term expectation for tax rates in the mid-20% range. Finally, given the strength of Q3 results, we are now targeting to generate over $500 million of free cash flow this year. This target includes an expected $165 million to $175 million of spending on fixed and IT investments, and another roughly $60 million in cash payments associated with restructuring actions. In summary, we’re very well positioned to navigate this challenging environment, and we look forward to coming out even stronger when our markets fully recover. While there continues to be macroeconomic uncertainty, looking ahead to next year, assuming a modest recovery in sales, we’re targeting to maintain our EBITDA margins. Before we open the call to questions, I have a special announcement to make. Some of you already know, Cindy Guenther, our Head of Investor Relations for most of the last 20-plus years, has decided to retire at the end of December. After supporting nearly 100 earnings calls, this will be her last. Over her 25 years with the company, she has been a valued partner and resource to me, Mitch, and the rest of the leadership team, as well as the investment community. We’re very grateful for her many contributions over the years. While we’ll miss Cindy, we’re happy to welcome John Earley back to the corporate team to lead Investor Relations. John has served in a variety of important finance roles over his time with the company, both in the businesses and corporate, including a few years working with Cindy in investor relations. So he will definitely hit the ground running. I do want to thank Cindy for her years of partnership and support to me, as well to the organization. It’s truly been a pleasure, Cindy, and I and the entire organization, and I’m sure the investment community is very thankful for your years of leadership, partnership, and support. Thank you again.

Thank you both.

With that, we’ll open up the questions.

Thank you. Hi everyone. Good day. Cindy, congratulations, it’s the end of an era, and John, congratulations to you as well.

Thanks, George.

Yes, it’s been fun. So I guess the first question I had, I want to go back to Slide 8, where you’re showing the 2019 sales by product category. And you show that 15% of revenue for last year was roughly driven by logistics shifting and other variable information. Given what we’ve seen this year and the pickup in e-commerce, is there a way to update us on how much that portion of the pie represents now for 2020? And if there’s any incremental you can give us in terms of how you think e-commerce is both benefiting RFID and variable information for that matter.

Yes, George, I think you’re asking about just what’s the new mix of revenue from Slide 8 for 2020. I mean, 2020 is actually not going to be a great baseline just given what happened in Q2 overall. But clearly, you would expect, with the significant growth in RFID as we build out the intelligent label platform, both organically and with the Smartrac acquisition, as well as a big piece of that being towards logistics, as well as other entities in those pieces of the various pies across these slides increase. So we will update all this at year-end, but I will say that even 2020 won’t be a great baseline. So we’ll give you probably a bit of a more rounded-out view going forward, how we expect the people similar to how we have in the past.

George, I’d also point out, if you’re assuming that all of the RFID is in that 15%, that would not be correct. We’ve captured apparel-related RFID in the 21% on that chart.

Thank you, Cindy.

Yes, Cindy, I wasn’t. I was just using it as a stepping-off point for a discussion. But is there a way to comment maybe a quick follow-on here on how much growth you’ve seen in variable information and how much of that you would attribute to e-commerce?

We are growing faster than average in volumes and the variable information categories within LGM and clearly within RBIS. It’s a big driver now. Within RBIS, it’s mostly apparel still, so that is the largest category, but as far as the pipeline, the pipeline is still growing quite significantly in other areas such as food and logistics, as I mentioned.

Okay. And then my other question, I’ll turn it over. Question number two is, you’ve obviously done a so far very, very good job on the temporary cost saves. Certainly, you’ve had really strong margins. So how should we expect that temporary cost save and that spending to be metered back into the business as volumes pickup? Do we have to worry about a quarter sometime in 2021, where you’re looking at a particularly negative earnings comparison, because you’ve got the cost savings coming in? Maybe more – the spending coming in more quickly than the volume ramps up, how would you have us think about that reintroduction of spending into the mix 2021 and ultimately I guess 2022 as well? Thank you.

Yes, thanks, George, this is Greg. So again, as we’ve said, the $150 million of temporary cost savings made up largely of three buckets. So incentive comp being the smallest bucket there, in addition to volume-related savings, as well as some belt-tightening. We would expect, as volumes come back for the majority of that cost to return. Now, how fast that return, particularly that volume-related piece will depend on how fast the volume returns, but even here at the end of the third quarter, of course, we started to see with volumes coming in better than we’d expected a little bit of increase in volume-related costs. When we think of things like overtime or temporary labor and those types of activities, we start to see that coming back with volume. So that’s something we’ll be managing with volume segment-by-segment as it returns. From an overall cost perspective, while we’ll expect to see that headwind from that temporary cost savings, we’ll also continue to see the benefit of the more structural cost reduction actions. The restructuring that we’ve done this year of $60 million to $70 million and then a similar level of incremental restructure in benefit next year as well.

Yes. Thank you. And Cindy, congrats, you’re certainly leaving on a high note.

Thank you, Ghanshyam. I planned it.

It seems like a very well planned. So if we go back to Slide 7, where you have the monthly organic growth throughout the course of the pandemic, it looks like you exited 3Q down 2% or so. 3Q average was down 3.5%, roughly, and it sounds like you’re pointing towards that average for the fourth quarter. Can you give us a sense as to how October has tracked, whether Western – whether Europe actually rebounded relative to what you saw in 3Q? And then, is there something we should keep in mind apart from the extra week or so in the fourth quarter that would get us to that average for 3Q for 4Q?

Sure. As we said earlier, we’re looking at 4Q being at or better than the pace of sales growth or decline in the third quarter. We’re only a few weeks here in October. I think the last couple of quarters of earnings calls has been a little bit later. We had a little bit broader view, but after only a few weeks, we have seen an improving trend so far in the month. We’ve seen slight improvements, particularly in developed regions within LGM and pretty favorable so far in RBIS as well, early on here in October. What we think we’ve seen in the back part of Q3, as well as the early part of Q4 here for RBIS, is really as brands and retailers have been gearing up for somewhat earlier and potentially longer holiday season. We started to see that ramp up a little bit earlier in September. We’ve seen a little bit of that at the beginning of October here as well. What we see is we’re not really sure how that will play out as we enter the back half of the quarter.

Got it. And then in terms of your comment on margins for 2021, I think you said EBITDA margins roughly comparable to – or at least maintaining it with 2020 levels. Can you give us some of the buckets of that, because $150 million of temporary cost savings is a very, very big draw in terms of a headwind? What would be the major offsets?

Yes. So, like you said, that is a big draw. If we see the – that will be partially dependent on how volume goes. So with volumes being still uncertain, we’ll layer that back in, as we mentioned a minute ago, as volumes come back, we would start to see those costs come back. At the same time, one of the bigger offsets is the incremental restructuring we’ve talked about as well, which we expect to be about $70 million next year. That’s why, in my comment, when we look this year to next year with a little bit of modest volume growth, we’d expect to be able to maintain the strong margins that we’re seeing this year. Now, part of the other way we’re thinking about it also comp into 2019, so kind of the pre-pandemic target. Looking at where we were in 2019 to 2021 or beyond, when markets recover, we’ll have a significant benefit from the couple of years’ worth of restructuring savings that we’ve been doing in the structural cost reductions over that multi-year period. That would be offset over a couple years of wage inflation and obviously, investments in the business and things like that, but when we look 2019 to 2021, that’s why we expect to continue to see margin expansion over that multi-year period.

Great. Thanks for taking my question. So in terms of RFID, are you still seeing evidence that your RFID engagements are accelerating? How much of this is driven by non-apparel markets versus apparel? And in general, do you see this business as opposed code and winner as companies push more omni-channel sales strategies?

Overall, we continue to see momentum build within RFID and related solutions as part of our Intelligent Label platform. Apparel continues we see it in the numbers, the results, but even from our pipeline apparel, we actually saw a pretty big tick up in early stage pipeline development as well. In addition to companies moving through the pipeline, there’s a lot more jumping into the mouth of the funnel, if you will, as the case for RFID is getting stronger and stronger because of COVID as you mentioned. Everything else that’s related to driving more and more omni-channel and just the increased efficiency, automation, and lower labor content that retailers and e-commerce players are looking for. We’re seeing that within apparel and food, and we have a few early-stage deployments as well as quite a bit of pipeline activity. Quite a bit more even early stage engagements. COVID definitely reinforces the strength of RFID, and you really just need to think through why; it’s really around more automation and more contact-less activities, whether that be at retail, in restaurants, or just in accelerating to make more efficient logistics and supply chains. We are seeing continued reinforcement across the board. Apparel, as we’ve said, will continue to be the main driver of growth over the coming couple of years. Our focus over the last couple of years has been to continue to drive penetration within apparel while seeding opportunities in other end markets as we’ve called out. That activity is progressing well.

Great. That’s helpful. Can you talk about what you’ve seen right now in terms of your chemical and paper raw material costs? How do you see a price-cost relationship playing out in the fourth quarter and then into 2021?

Yes. We still saw a little bit of sequential deflation in the third quarter, really driven by paper. In the back part of the third quarter, we really started to see some inflation in chemicals, particularly in North America. When we look at chemicals and films, we’re also starting to see some pressure in freight, particularly in North America as well. We see that kind of moderating a little bit of a headwind as we go from Q3 to Q4 from the inflationary perspective. Hard to call what that’s going to look like, I think for 2021 at this point, but we had some stills some favorability in Q3. We see that turning into a little bit of unfavorability from the overall basket of raw materials and freight in the fourth quarter.

Thanks. Good morning, everyone. And Cindy, it’s been a real pleasure working with you, and I hope you won’t miss us too much in retirement.

Thanks, Adam.

Specifically with LGM, that tends to view relatively sticky and stable businesses across the cycles. It’s not as sensitive to some of the big shifts that you see even with COVID-19 cycles. You’d expect it to actually be growing faster than overall consumption because of what's going on in the migration to more packaged goods, as well as e-commerce trends that we’ve been talking about in the past. When you look at overall just general GDP growth trends, personal consumption, and non-durable consumer goods, our revenue trends have been better than some of those macro categories throughout the pandemic. That’s why I stepped back and commented on the March to September timeframe. Within the RBIS, it came back much quicker than anticipated. After everything coming to a halt for a couple of months, retail and apparel realized they needed to have goods in time for the holiday, which leads to increased orders dramatically. They’re looking to spread it out, and the uncertainty there is just the early sales or what happens around the consumer level at retail. We’re in a good position for RBIS as holiday is key based on how consumers are behaving.

I appreciate that, Mitch. One other question: At the outset of the pandemic, you talked about next year under the assumption that this turned out to be a normal recession or at least similar to the last one.

Yes. The biggest lesson is just the importance and strength of our scenario planning. We talked about this in past earnings calls and so forth. This is something we do. I think it’s often looked at by investors from just a financial scenario planning, but we embed this within our businesses to be prepared for multiple environments. We’ve learned that in a big way coming out of the last recession. While the root cause of this crisis was different, we were able to pretty quickly go into deployment mode, and the team was already used to being able to do this. It just reinforces the value of scenario planning.

Yes. Hi. Thanks for taking my question. I want to reiterate my congratulations to Cindy and thanks for all your help, much appreciated.

You’re welcome.

Just on the quarter, looking at some of the monthly trends, specifically just thinking about RBIS, it’s kind of impressive how stable each month was. I was wondering if you can give us a little bit more color on maybe some of the undercurrents behind that. Was RFID stronger earlier or later, or base label and tag stronger earlier or later, or was it as smooth as it looks based on what you show on Slide 7?

Yes, Josh. There are some movements between months. September was actually a tougher comp for us, as well as a very strong month for us last quarter. Even being down 5% in September is still a bit better than what we fell earlier in the quarter. From the base apparel business, materially gearing up for the holiday started to impact us as we moved through the quarter and then RFID, as Mitch has talked a fair amount about has been strong pretty much across the quarter.

Okay. Thanks. And just on the free cash flow side and cash deployment. You did a small amount of share repurchases this quarter. I think if you look at perhaps forecasts, your leverage comes down pretty quickly over the next couple of quarters. How do you think about cash deployment here over the next couple quarters? Do you think share repurchases play a bigger role? Additionally, the M&A pipeline, active and rebuilding, is it possible to do deals given what you might see in terms of tougher performance through 2020 in terms of targets you may be looking at?

Overall, as you said, our balance sheet continues to strengthen here through this time period this year. We’ve got ample capacity to continue managing across all the levers of our capital allocation. We’re continuing to invest organically in the business, and we’re also working the M&A pipeline. We haven’t seen much flow through there yet after the Smartrac acquisition that we just closed in March of this year, but we’re continuing to work that pipeline. I wouldn’t say that we’ve seen big changes in valuations this year, but we are also continuing to turn cash to shareholders with the growing dividend and continuing share buybacks. Our focus is on continuing the same capital allocation priorities that we’ve had over time.

Thanks very much. In looking at your income statement, your SG&A costs year-over-year really don’t change very much for all of the interim cost savings and the structural cost savings. The real changes in cost of goods sold and that cost of goods sold is down more as a percentage and it’s obviously a much bigger number than SG&A. Why is it that the cost savings are really located in cost of goods sold and not in SG&A?

Over the course of the year, it’s pretty well balanced between SG&A and cost of sales. A lot of those volume-driven temporary cost reductions we’ve talked about are more in cost of sales, because those are things like overtime, temp costs, some furloughs in the second quarter, et cetera. There’s some movement up and down between quarters, a little bit of incentive comp favorability we talked about in Q2, a little bit of unfavorability then from that perspective in Q3, but overall it’s fairly well balanced between the two.

Okay. In the label business, I think you said that your European volumes were down 10% in the quarter. Was that because they were down a lot in July and then they really improved? Like, what does the down 10% look like for each of the months? Or can you frame it so that we have an idea of where things stand in Europe or what were European volumes in October?

They were down upper single digits volumes within Q3 for Europe our labels and packaging materials business. They were down almost 10% in July and trended better throughout. In October, they’re down low single digits, so an improving trend.

Thank you. Hey, everyone and congrats to you, Cindy. I wanted to go back to your RFID pipeline size. I guess engagements are up 45%. So where does that put the number of engagements now? Is that close to 500 now? How much of the revenue growth – RFID revenue growth in the apparel business do you think is net growth, because I’m guessing you’re missing on sales stuff from the traditional base tax to some of these apparel customers. What’s the net incremental there?

Most of it is net incremental; I don’t have a precise number. You have to also understand because of what’s going on in retail; some categories and just customer categories are down and others are up dramatically, particularly value as we had mentioned earlier. Far as the pipeline, yes, we’re still seeing robust – we’re not going to probably be disclosing the actual number of activities within each of the pipeline overall, but it’s continuing to ramp up at the pace that we’ve talked through.

Sure. Yes, just some quick comments. We have two broad focuses, one is just reducing the environmental impact of our actual operations. We’ve had a focus that we embarked on back in 2015 on reducing greenhouse gas emissions, buying more sustainably produced raw materials such as paper and so forth. We’re on track or ahead of schedule on all those greenhouse gas emissions in absolute terms. While we’ve grown, we’ve actually reduced our greenhouse gas by more than 30% already and are ahead track of our targets. The second is really around how do we create more sustainable products, enabling more circular economy around recyclability and so forth. We launched CleanFlake a number of years ago, specifically with that end, which has helped some more efficient and effective recyclability of plastic containers. We’re looking at how to roll that out and broaden the specific number of the product portfolio all around CleanFlake as this is starting to take more hold within the market.

Yes. Hi. Thank you. I’ll throw in my congrats to Cindy as well. Actually, I’ve been following the company long enough to remember that Cindy sort of tried to retire once before. I hope this one sticks, right? So my questions are focused on LGM, and you mentioned sort of the disparate trends by geography contracting, particularly North America and Europe. I’m wondering if there’s something different about the competitive dynamic or something structurally about the markets that are different now that could help explain that trend?

Yes. There are two factors. One is, as we look over the seven months from March through September, what we commented on, the biggest one is just consumption in Europe is below the U.S. That’s one clear thing, can’t really tell the difference between destocking levels and inventory levels relative to the two. But the other one is we did comment that we thought we lost some share in Europe in Q2. We’ve been recovering that here in Q3 and we’ll continue over the next couple of quarters, but we’ve covered a good portion of that here in Q3 already. So if you look over the March to September timeframe, that is part of the impact. But the majority, we believe, is tied to differentials in end consumption.

Yes. Thanks for taking my question and congrats Cindy, awesome career over the years. When we think about the $150 million of temporary cost saves, I guess clearly the management compensation one, like you can’t cut it and hold it there forever. But have you learned anything through either the belt-tightening side or the volume metric driven cost cuts that maybe don’t reverse and so that we could actually see some of the portion of the $150 million actually hold as a permanent cost cut? How should we be thinking about that?

Yes. We expect the vast majority to come back depending on volume environments, but clearly the current environment has provided new opportunities for new ways of working and so forth. Some of it will stick; we haven’t done the full assessment of exactly how much will be. We will be doing that over the coming few months. Overall, some of it will, but the mass majority will be coming back.

Hi guys. Thanks for taking the follow-on questions. You already told us that next year you would hope to keep EBITDA margins relatively constant with 2020. Correct me if I misphrased anything there. Is there a way to give us a bit more color on what you expect for RBIS? You’ve said half of the savings will be from restructuring will be going into RBIS. Do you expect RBIS’s margins to be flat, or do you think RBIS margins actually have the ability to be up year-on-year? How would you guide us as we think out to 2021?

The first one as far as RBIS margin outlook for next year, I don’t think we’re going to comment on that. Our overall point here for laying out the expectations for 2021 is that with a modest amount of growth and recovery, we are going to be focused again, just like we’ve talked about for the last two years, in a low growth environment to protect margins. That will be a key focus of ours, and that’s across the enterprise. The uncertainty is really late Q4 early Q1 around the fact that retail was largely closed in the spring of 2020, and some garments weren’t sold. One and two, retailers and apparel brands will have seen early how holiday is performing, and that impacts retailer sentiment and what their open-to-buy is for the following season. It’s really watching closely on consumer behavior and retailer brand communications here mid to late Q4, and that will be a key driver for us.

Okay. I just want to thank everybody for joining the call. And once again, thank our team for their endless commitment in ensuring the success of all of our stakeholders. Thank you very much.