DEF 14A: Avery Dennison Proxy: Executive Pay, Board, Shareholder Vote

Avery Dennison's latest proxy statement outlines proposals for its 2026 Annual Meeting, including director elections, executive compensation approval, and a contested independent board chairman proposal.

Summary

• The 2026 Annual Meeting of Stockholders is scheduled for April 30, 2026, at 12:00 p.m. Eastern Time, to be held virtually.
• Key proposals for the Annual Meeting include the election of ten director nominees, an advisory vote on executive compensation, and the ratification of PwC as the independent registered public accounting firm for fiscal year 2026.
• A stockholder proposal for an independent Board Chairman will also be voted on, which the Board recommends AGAINST.
• For fiscal year 2025, net sales increased by 1.1% to $8.9 billion, with sales change excluding currency up 0.4%.
• Reported EPS was $8.79, and adjusted EPS increased by 1.1% to $9.53.
• Net cash provided by operating activities decreased by 6.1% to $881.4 million, while adjusted free cash flow increased by 1.1% to $707.1 million, with a conversion rate of 103%.
• Net income decreased by 2.4% to $688.0 million, and Return on Total Capital (ROTC) was 15.0%.
• The company exceeded its 2021-2025 sales change ex. currency target (5.7% achieved vs. 5%+ target) and met its adjusted EBITDA margin target (16.4% achieved vs. 16%+ target).
• However, the company did not achieve its 2021-2025 targets for adjusted EPS growth (6.1% achieved vs. 10% target) and ROTC (15.0% achieved vs. 18%+ target).
• In 2025, $200.4 million was invested in capital expenditures, W.F. Taylor Holdings, Inc. was acquired for approximately $390 million, $288.4 million was paid in dividends, and $572.3 million was used for share repurchases.
• The Board of Directors consists of ten members, 80% of whom are independent, with an average age of 61 and an average tenure of seven years.
• The CEO's total compensation for 2025 was $9,538,375, and the median employee's total compensation was $17,158, resulting in a CEO pay ratio of 556 to 1.
• The company substantially achieved its 2025 sustainability goals, including all environmental targets, and received an EcoVadis gold rating for sustainability performance.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a moderately positive outlook, reflecting the company's resilience and strategic execution in a challenging environment, despite missing some long-term financial targets. Strong governance and sustainability progress provide a solid foundation for future growth.

Positives

• Achieved 5.7% sales change ex. currency for 2021-2025, exceeding the 5%+ target.
• Met the 2021-2025 adjusted EBITDA margin target, reaching 16.4% in 2025.
• Delivered solid 2025 financial results in a dynamic environment, maintaining margins and generating substantial cash flow through productivity initiatives.
• High-value categories, now representing approximately 45% of revenue mix, delivered above-average organic sales growth and higher-than-average enterprise margins.
• Realized over $60 million in pre-tax savings from restructuring actions in 2025.
• Maintained a strong balance sheet with ample capacity for investment.
• Increased the quarterly dividend rate by 7% in April 2025, distributing $288.4 million in dividends.
• Repurchased 3.2 million shares for $572.3 million, strategically accelerating repurchases when the share price was significantly lower than its intrinsic value.
• Five-year Total Stockholder Return (TSR) of 27% outperformed the Dow Jones U.S. Container & Packaging Index (1%).
• Substantially achieved all 2025 environmental sustainability goals, including a 61% reduction in Scope 1 and 2 GHG emissions from the 2015 baseline and diverting 96% of solid waste from landfills.
• Awarded an EcoVadis gold rating for sustainability performance in 2025, placing the company in the top 5% globally.
• Achieved an employee engagement score of 86% in 2025, the highest since 2018, reflecting improved engagement across all businesses.
• Maintained a world-class safety record with a recordable incident rate (RIR) of 0.17 in 2025, significantly below the manufacturing industry average of 2.7 in 2024.
• Received 95% stockholder approval for executive compensation at the 2025 Annual Meeting, indicating strong investor support for the program.
• The Board of Directors is 80% independent, with all key committees (Audit, Compensation, Governance) composed entirely of independent directors.
• Formed a standalone Cybersecurity Committee in January 2026 to enhance oversight of cybersecurity and information security risks.

Negatives

• Net cash provided by operating activities decreased by 6.1% to $881.4 million in 2025 from $938.8 million in 2024.
• Net income decreased by 2.4% to $688.0 million in 2025 from $704.9 million in 2024.
• Did not achieve the 2021-2025 target for adjusted EPS growth (6.1% achieved vs. 10% target).
• Did not achieve the 2021-2025 target for Return on Total Capital (ROTC) (15.0% achieved vs. 18%+ target).
• The 2025 Total Stockholder Return (TSR) was slightly negative (-1%) and underperformed the S&P 500 Industrials Index (19%) and the S&P 500 Index (18%).
• Organic sales growth in enterprise Intelligent Labels was low-single digit in 2025, falling short of targets due to lower volumes in apparel and general merchandise impacted by tariffs.
• Operating working capital productivity in 2025 was lower than the prior year.
• General productivity across Materials and Solutions was below targeted amounts due to tariff-impacted network inefficiencies.
• The Board of Directors recommends voting AGAINST a stockholder proposal for an independent Board Chairman.

Risks

• Macroeconomic environment, particularly tariff-related uncertainty, poses ongoing challenges.
• Elevated geopolitical and macroeconomic uncertainty could negatively impact industries served.
• Softer consumer sentiment could continue to affect demand.
• Uneven adoption of intelligent labels presents a challenge to growth targets.
• Managing the evolving impacts of key megatrends, including digitization, artificial intelligence, sustainability, circularity, retail transformation, and demographic shifts, requires continuous adaptation.
• An increasingly de-globalized world necessitates adjustments to capital allocation strategies, localization of capacity, and rebalancing of manufacturing and distribution networks to mitigate tariff impacts and increase agility.
• Potential independence risk related to auditor tenure, although the Audit Committee has controls in place to mitigate this.
• Cybersecurity and information security risks, including the impact of artificial intelligence on these matters, require continuous oversight and management.
• Challenges in reducing Scope 3 GHG emissions persist, requiring supply chain collaboration.
• Water usage impact, particularly from paper suppliers, is an area of ongoing assessment.
• Compliance with evolving regulatory requirements, such as the European Corporate Sustainability Reporting Directive (CSRD) starting in 2028, will impose additional disclosure burdens.
• The executive compensation program is periodically assessed for incentives that could encourage excessive risk-taking, though the Compensation Committee concluded it does not.

Future Outlook

The company entered 2026 with a clear path to achieving its 2025-2028 financial targets, focusing on expanding its leading position in connecting physical items to digital identities and driving growth in high-value categories both organically and through acquisitions. Management anticipates that key megatrends such as digitization, artificial intelligence, sustainability, circularity, retail transformation, and demographic shifts will have net positive impacts on the industries served, despite elevated geopolitical and macroeconomic uncertainty. Near-term priorities include driving profitable growth in high-value categories, accelerating cost leadership, improving capital efficiency, delivering enterprise innovation, increasing digital/AI outcomes, and pursuing acquisition opportunities. The company also expects to use European Corporate Sustainability Reporting Directive (CSRD) reports as the primary disclosure vehicle for sustainability data starting in 2028, based on 2027 data.

Management Comments

• "Exited a dynamic and challenging 2025 not just more resilient, but structurally stronger to deliver longer-term value creation."
• "Continued advancement of our strategic priorities underpins our confidence in returning to stronger growth and delivering top-quartile returns, and we entered 2026 with a clear path to achieving our 2025-2028 financial targets."
• "Connecting physical items with digital identities is a multi-decade growth platform where we are uniquely positioned to win."
• "Now focused on expanding our leading position in connecting physical items to digital identities and driving growth in high-value categories organically and inorganically while strengthening our base businesses."
• "Sustainability is a business imperative that drives profitable revenue growth and margin expansion while also reducing our environmental impact and ensuring we comply with evolving regulatory requirements."

Industry Context

StockSavvy.ai notes that Avery Dennison's strategic emphasis on high-value categories and digital identification solutions, particularly RFID, positions it well within the broader industry trend of digitization and supply chain optimization. While the company outperformed its direct container and packaging peers in 5-year Total Stockholder Return (TSR), its 1-year underperformance against broader market indices suggests some sector-specific headwinds or a slower recovery in certain segments compared to the wider industrial market. The focus on sustainability and circularity also aligns with increasing regulatory and consumer demand for ESG-compliant solutions across its diverse customer base, indicating a proactive approach to evolving market expectations.

Comparison to Industry Standards

• The company's five-year Total Stockholder Return (TSR) of 27% significantly outperformed the Dow Jones U.S. Container & Packaging Index (1%).
• The five-year TSR of 27% underperformed the broader S&P 500 Industrials Index (90%) and the S&P 500 Index (96%).
• The 2025 TSR of -1% was modestly higher than the Dow Jones U.S. Container & Packaging Index (-10%) but lower than the S&P 500 Industrials Index (19%) and the S&P 500 Index (18%).
• The world-class safety record, with a recordable incident rate (RIR) of 0.17 in 2025, is substantially lower than the manufacturing industry average of 2.7 in 2024, indicating superior operational safety performance.
• The EcoVadis gold rating for sustainability performance in 2025 places the company in the top 5% of companies for sustainability practices across more than 180 countries, demonstrating strong environmental and social governance compared to global benchmarks.
• The adjusted EPS growth (6.1%) for 2021-2025 fell short of its 10% internal target, and Return on Total Capital (ROTC) (15.0%) missed its 18%+ internal target, indicating challenges in capital efficiency and earnings compounding relative to internal benchmarks.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders: Directly impacted by financial performance, Total Stockholder Return (TSR), dividend payments ($288.4 million in 2025), share repurchases ($572.3 million in 2025), and executive compensation decisions. The stockholder proposal for an independent Board Chairman indicates ongoing shareholder interest in governance structure.
• Employees: Benefit from talent management and leadership development programs, enhanced workplace culture, fair and equitable pay practices, and a world-class safety record (RIR of 0.17 in 2025). The company's community investment efforts also support employee well-being.
• Customers: Benefit from the company's innovation in materials science and digital identification solutions, efforts to advance sustainability and circularity, and solutions that optimize efficiency and improve customer experience.
• Communities: Supported through the Avery Dennison Foundation (ADF), which contributed $6.1 million in grants and other charitable contributions in 2025, focusing on education access, environmental sustainability, and secure livelihoods.
• Suppliers: Engaged in efforts to reduce Scope 3 GHG emissions and comply with restricted chemical lists, with third-party audits used to assess supplier sustainability.
• Creditors: Positively impacted by the company's strong balance sheet, disciplined capital allocation, and ability to generate substantial cash flow.

Next Steps

• The 2026 Annual Meeting of Stockholders is scheduled for April 30, 2026, where stockholders will vote on director elections, executive compensation, auditor ratification, and an independent Board Chairman proposal.
• The Board plans to visit Materials and Solutions manufacturing facilities in France and Italy during the first half of 2026.
• The Avery Dennison Foundation (ADF) plans to expand its college scholarship program to all countries with significant employee presence in 2026.
• The Compensation Committee plans to next conduct a formal risk assessment with Semler Brossy in February 2027.
• The Compensation Committee plans to next review non-employee director compensation in February 2027.
• The European Corporate Sustainability Reporting Directive (CSRD) will impose additional disclosure requirements for the company beginning in 2028 (based on 2027 data), with the company anticipating using these reports as the primary disclosure vehicle for sustainability data in future years.
• Management will continue to focus on driving profitable growth in high-value categories, accelerating cost leadership, improving capital efficiency, delivering enterprise innovation, increasing digital/AI outcomes, and pursuing acquisition opportunities.

Key Dates

Recommendation

The company demonstrated resilience and solid performance in a challenging 2025, meeting or exceeding some long-term financial targets while falling short on others like adjusted EPS growth and Return on Total Capital (ROTC). Strategic focus on high-value categories, digital solutions, and sustainability is positive. Strong corporate governance and a commitment to shareholder returns through dividends and share repurchases are evident. However, the mixed performance against all long-term targets and the slight negative Total Stockholder Return (TSR) in 2025 suggest that while the company is well-managed, it faces ongoing macroeconomic headwinds. A seasoned investor would likely maintain a 'hold' position, awaiting clearer signs of consistent outperformance across all key financial metrics and a more favorable macroeconomic environment to justify a stronger recommendation.

Keywords

Avery Dennison, Proxy Statement, Executive Compensation, Corporate Governance, Sustainability, Financial Performance, Board of Directors, Risk Management, Intelligent Labels, RFID, Materials Science, Capital Allocation, Shareholder Meeting, DEF 14A, ESG, PwC, Dividends, Share Repurchases