Avery Dennison Q2 2026 sales rose 10.9% to $2.46B (8% organic), with Materials Group volume partly from customer inventory stocking; diluted EPS rose 10.8% to $2.67 as restructuring and a higher tax rate held net income to +8%.
Revenue
$2.5B
+10.9% YoY
Net income
$204M
+8.0% YoY
Diluted EPS
$2.67
+10.8% YoY
Operating margin
12.7%
Overview
Avery Dennison makes pressure-sensitive label materials (the adhesive-backed stock behind most product labels), graphics films, apparel tags and RFID "intelligent labels" (tags with a tiny radio chip that a scanner can read without line of sight). In the second quarter of 2026 (the three months to June 30) net sales rose 10.9% to $2,462.9 million. About 8 points of that was organic growth, meaning growth after stripping out currency moves and acquisitions. Favorable currency translation added about 2 points and acquisitions about 1. Diluted EPS rose 10.8% to $2.67.
Almost all of the growth came from the Materials Group. Its organic sales rose 10%, and the 10-Q says the extra volume came "in part resulting from customer inventory stocking", meaning customers built up stock. That caveat matters when judging how much of the quarter will repeat. The Solutions Group (apparel labels, RFID and retail tagging) grew 3% organically. Its margin improved more than Materials', but mainly because of cost cuts rather than stronger demand.
Key metrics — Q2 2026
Metric
Q2 2026
Q2 2025
YoY Change
Net sales
$2,462.9M
$2,220.5M
+10.9%
Organic sales change
+8%
—
—
Gross margin
29.6%
28.8%
+0.8 pts
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The 10-Q has no "operating income" line. GAAP operating income here is income before taxes plus interest expense, minus other non-operating income: $313.5M this year vs $286.2M last year. That is the reported segment income ($360.5M) minus corporate expense ($25.9M) and other expense ($21.1M), and it matches the segment margins in the earnings release (Materials 15.6%, Solutions 8.9% reported).
Where the 10.9% came from
Driver
Q2 2026
Six months 2026
Reported net sales change
+11%
+9%
Currency translation
~+2 pts
~+3 pts
Acquisitions
~+1 pt
~+1 pt
Organic sales change
+8%
+4%
The first half as a whole grew only 4% organically, so Q2 accelerated sharply from a much weaker Q1. For the quarter, management attributes the organic gain to "higher volume, partially offset by unfavorable mix". Mix means the company sold relatively more of its lower-margin products. For the half year, the 10-Q also lists "raw material deflation-related price reductions": when input costs fell, some of the savings went back to customers as lower prices.
Segment performance
Segment
Q2 2026 net sales
Q2 2025 net sales
Reported change
Organic change
Segment adj. operating income
Prior year
Materials Group
$1,796.1M
$1,550.2M
+16%
+10%
$284.0M
$242.5M
Solutions Group
$666.8M
$670.3M
-1%
+3%
$76.5M
$67.0M
Materials Group. Of the 16% reported growth, about 3 points came from currency, about 2 from acquisitions, and about 2 from sales moved into this segment from Solutions in a reporting reclassification. That leaves 10% organic. According to the earnings release, volume/mix grew by a high-single-digit rate and price rose by a low-single-digit rate. By region, organic sales grew at a mid-teens rate in Europe, the Middle East and North Africa, and at high-single-digit rates in North America and Asia Pacific. Latin America grew at a low-single-digit rate. Segment operating income rose 17% ($284.0M vs $242.5M). The 10-Q credits higher volume, a net benefit from pricing and raw material costs (including "material re-engineering", i.e. redesigning products to use cheaper or less material) and restructuring savings. Unfavorable mix and higher employee costs partly offset those gains. The margin rose only 0.2 points, to 15.8%, because the extra volume was weighted toward lower-margin base products. The release puts base categories up low double digits and high-value categories up mid-single digits.
Solutions Group. Reported sales fell 0.5%. The main reason is the same reclassification, which moved about 4 points of sales out of this segment. On a like-for-like basis sales grew 3%, with low-single-digit growth in both base and high-value categories, and the release puts overall apparel categories up high single digits. Segment operating income rose 14% to $76.5M, lifting the margin to 11.5% from 10.0%. The 10-Q credits productivity and restructuring savings plus pricing net of raw material costs, partly offset by higher employee costs. So the margin gain came from cost cuts, not from sales growth.
Intelligent labels (RFID). Company-wide organic sales of intelligent labels grew by only "a low single digit rate" in both the quarter and the first half. This is the business the company presents as its long-term growth engine, and it grew more slowly than the base label business this quarter. In the first half Avery Dennison also made an approximately $75 million minority investment in Wiliot Ltd., a company working on battery-free Bluetooth tags.
Why net income grew slower than sales
Net income rose 8% on 11% sales growth. Below gross profit, three things held it back:
Other expense rose to $21.1M from $0.5M. Restructuring charges (severance plus asset impairment) were $18.6M, up from $8.0M. The prior-year quarter also included an $11.1M gain on asset sales that did not recur. Across the half year the 2026 restructuring program cost $34.7M and cuts about 600 positions.
The tax rate rose to 27.8% from 26.0%. The 10-Q says this was because of "lower discrete benefits from decreases in certain tax reserves", i.e. fewer one-time tax releases than last year.
Interest expense rose to $35.9M from $34.0M, driven by the €500 million of senior notes issued in September 2025.
That is why the company's adjusted EPS (+19.4% to $2.89), which excludes restructuring and other items, grew much faster than GAAP EPS (+10.8%). The underlying operating performance was better than the GAAP line shows, but the restructuring costs are real cash spending. Buybacks also lifted per-share results: diluted shares fell to 76.4M from 78.3M, about 2.4% fewer.
Six months year-to-date
Metric
H1 2026
H1 2025
YoY Change
Net sales
$4,761.4M
$4,368.8M
+9.0%
Organic sales change
+4%
—
—
Net income
$372.2M
$355.3M
+4.8%
Diluted EPS
$4.85
$4.50
+7.8%
Operating margin (GAAP)
12.3%
12.4%
-0.1 pts
Adjusted free cash flow
$469.8M
$135.8M
+$334.0M
Cash generation improved the most. Adjusted free cash flow, meaning cash from operations minus capital spending, more than tripled to $469.8M. The 10-Q attributes this to working-capital changes and lower incentive-compensation payouts, partly offset by higher tax payments. Solutions Group segment income was flat for the half ($135.0M vs $135.2M), so its Q2 improvement only made up for a weaker Q1. In the first half the company returned $347M to shareholders through buybacks (1.2 million shares) and dividends, and it raised the quarterly dividend about 6% to $1.00 a share.
Takeaway: Q2's 8% organic growth was double the first half's 4% rate, but the 10-Q says part of the Materials Group's volume came from customers building inventory. Much of that growth came from lower-margin base products, and the RFID business the company presents as its growth engine grew only at a low-single-digit rate. The quarter shows good cost control more clearly than it shows lasting demand.
Outlook
Management guides full-year 2026 reported EPS of $9.40–$9.70 and adjusted EPS of $10.00–$10.30 (earnings release, July 30, 2026). First-half reported EPS was $4.85, so the guidance implies second-half reported EPS of about $4.55–$4.85, at or below the first half. The 10-Q's outlook factors explain part of that. They include higher interest expense, a full-year tax rate in the "high-twenty percent range", and a hit to operating income as most of last year's temporary cost savings (mainly lower incentive pay) come to an end. Offsetting those are a currency tailwind and further restructuring savings.
Our view: guidance that is flat to down in the second half is consistent with the stocking-driven volume unwinding. The things to watch in Q3 are whether Materials Group organic growth falls back toward the mid-single digits of the first half as a whole, and whether intelligent labels speed up. For now, earnings growth depends more on restructuring savings and buybacks than on RFID.