Welcome to Avery Dennison's earnings conference call for the first quarter ended April 3rd, 2021. This call is being recorded and will be available for replay from noon Pacific Time today through midnight Pacific Time, May 1st. To access the replay please dial 86338284 or one or 029779140 for international callers. The conference ID number is 21969419. I'd now like to turn the call over to John Eble, Avery Dennison's Head of Investor Relations. Please go ahead, sir. Thank you, Pema. 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 A4 to A8 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. 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, John, and good day, everyone. We are off to a strong start to the year with revenue up 11%, EPS up 45%, both well above expectations, and strong free cash flow. The favorable results were driven by improving and broad-based volume and productivity gains across the portfolio as all three of our operating segments delivered strong sales growth and significant margin expansion. We experienced strong demand as many economies emerge from the depths of the recession amidst rising confidence. This, combined with both the structural and temporary productivity initiatives we've implemented, drove a strong quarter. Now, while we are pleased with the results, our strong performance comes at a time of continued uncertainty given the global health crisis and constraints within supply chains. The current environment further reinforces our determination to remain vigilant in protecting the health and well-being of our team and agile to ensure we continue to meet our customers' needs. While the rate of COVID-19 infections declined in a number of countries, including the U.S., and optimism increases as vaccines roll out, much of continental Europe has been in lockdown and other countries such as India and Brazil have experienced a significant rise in infection rates. Fortunately, the rate of new cases among the team remains relatively stable. In addition to the effects of the pandemic, natural disasters such as the Texas winter storm and other factors, the microchip shortage being an example, are constricting supply chains even further, affecting our end markets and adding to inflationary pressures. Despite these supply chain constraints, we've been able to deliver record volumes as our team has done a great job at leveraging our global network and scale to ensure we continue to meet customers' needs. Now a quick update by business. Label and Graphic Materials posted strong top-line growth for the quarter as demand for consumer packaged goods and e-commerce trends continued to drive strong volume in our label and packaging materials business, while our graphic and reflective solutions business rebounded faster than expected. LGM's margin was strong in the quarter, ahead of expectations actually, as the flow-through from higher volume, including strength in high-value categories, coupled with productivity gains, enabled significant margin expansion. Retail Branding and Information Solutions delivered strong sales growth in the quarter, driven by both high-value product categories, particularly RFID, and the core apparel business. The strong top line was driven by retailers and brands gearing up for a rebound in demand and, to a lesser extent, easier comps. Enterprise-wide, Intelligent Labels sales were up 40% ex currency and up 20% on an organic basis. As expected, the strong growth of our RFID business was primarily driven by apparel, while outside of apparel, we continued to see strong momentum building for new applications. As we outlined in detail at our Investor Day last month, we have a tremendous amount of opportunity in this space, in apparel, food, logistics, and more. As you also heard, our focus is not only to be the world's leading RFID supplier. We are creating a broader Intelligent Labels platform to bridge the physical and digital worlds. As part of this, we are investing in digital identification technologies that enhance the ability to manage and store item-level information. To this end, we recently announced two digital initiatives. One, the acquisition of a small software startup, ZippyYum, and the other being the launch of a connected product cloud platform, atma.io. As for the bottom line, RBIS delivered significant margin expansion in the quarter, driven by higher volume and productivity initiatives. Given the margin and growth profile of this business, we will continue to ramp up our pace of investments in the segment, particularly in intelligent labels, with an accelerated pace throughout the remainder of the year. Turning to Industrial and Healthcare Materials, the segment delivered strong sales growth in the quarter, driven by a significant rebound in demand for industrial products, while we continue to make good progress towards achieving the long-term margin target for this business. We continue to invest in this segment, including the acquisition of JDC Solutions, a small manufacturer of specialty tapes for use in a variety of high-value industrial applications that we closed in March. Now, given our strong performance in Q1 and our revised expectations for the rest of the year, we have raised our full-year outlook and now anticipate top-line growth of 9%-11% ex-currency and earnings per share of $8.40-$8.80. We are pleased with the continued progress we are making towards the success of all of our stakeholders. Our consistent performance reflects the strength of our markets, our industry-leading positions, the strategic foundations we've laid, and our agile and talented team. We remain focused on our five key strategies: driving outsized growth in high-value categories, growing profitably in our base businesses, focusing relentlessly on productivity, effectively allocating capital, and leading in an environmentally and socially responsible manner. We are confident that the consistent execution of these strategies will enable us to achieve our long-term goals, including consistently delivering GDP plus growth and top-quartile returns. Once again, I want to thank our entire team for their tireless efforts to keep one another safe while continuing to deliver for our customers during this challenging period, bringing a whole new level of agility and dedication to address the unique challenges at hand. Over to you, Greg. Thanks, Mitch. Hello, everybody. As Mitch said, we delivered a strong start to the year with adjusted earnings per share of $2.40 above our expectations. This roughly $0.75 increase over prior year was driven by strong growth and productivity gains, as well as an estimated $0.25 benefit from the combined impact from the calendar shift and pre-buys. Sales grew ex-currency 11% and 9% on an organic basis, driven by strong broad-based demand as well as a modest benefit from easier comps as the pandemic began to impact our results in Q1 of last year. Given the strong revenue combined with productivity gains, we delivered adjusted EBITDA margin of 16.5% and adjusted operating margin of 13.9%, both up roughly two points. We realized $19 million of net restructuring savings in the quarter, the majority of which represented carryover from projects we had pulled forward into 2020. We continue to expect roughly $70 million from net restructuring savings this year. As Mitch mentioned, to begin the year, supply chains have remained tight and input costs have been increasing. As a result, raw material and freight inflation were above our initial expectations, and we have continued to see costs rise as we entered the second quarter. We now expect mid to high single-digit inflation for the year, with variations by region and product category. As we typically do, we will address this through a combination of both product re-engineering and pricing. We've announced price increases in most of our businesses in regions across the world. Given the pricing announcements, some customers accelerated orders into the first quarter ahead of pricing adjustments. We estimate the pre-buy benefit to Q1 was roughly two points of revenue growth, and we anticipate this impact will largely come out of Q2. We generated $182 million of free cash flow in the quarter, up substantially compared to last year, primarily driven by improved working capital and higher operating results. Working capital as a percent of sales improved compared to prior year, driven by better receivables and inventory turns. Our balance sheet remains strong with a net debt to adjusted EBITDA ratio at quarter end of 1.6. Our current leverage position gives us ample capacity to continue executing our disciplined capital allocation strategy, including investing in organic growth and acquisitions while continuing to return cash to shareholders. Last week, we announced that the board approved a 10% increase to our quarterly dividend rate following the 7% increase last year. In the quarter, we paid $52 million in dividends and repurchased roughly 300,000 shares at an aggregate cost of $56 million. As you know, we increased our pace of inorganic investments last year, and we've continued on that front, deploying $31 million for acquisitions in the first quarter, including JDC Solutions and ZippyYum. Turning to segment results for the quarter. Label and Graphic Materials sales were up 8.4%, excluding currency, and 7.6% on an organic basis, driven by higher volume. Sales were up roughly 7% organically in Label and Packaging Materials, with strong volume growth in both the high-value product categories and the base business, partially offset by carryover price reductions. Graphics and Reflective sales continued to rebound nicely and were up 9% organically. Looking at the segment's organic sales growth in the quarter by region, North America and Western Europe sales were up low single digits, while emerging markets overall were up mid-teens. The Asia Pacific region grew roughly 20%, led by growth in China and India, although the recent surge in COVID-19 cases in India has heightened uncertainty in the region. Latin America grew mid-teens, with particular strength in Brazil. LGM's adjusted operating margin increased 150 basis points to 16.3%, as the benefits from strong volume, including the benefit of the calendar shift in pre-buy and productivity, more than offset higher employee-related costs and the net impact of pricing and raw material cost. Shifting now to Retail Branding and Information Solutions, RBIS sales were up 15% ex currency and 9.3% on an organic basis, as growth was strong in both the high-value categories and the base business. The core apparel business was up mid to high single digits as retailers and brands prepare for the stronger demand, with particular strength in the value and performance channels. As Mitch indicated, excluding currency, Intelligent Labels sales were up 40% and up 20% on an organic basis. Adjusted operating margin for the segment increased 440 basis points to 12.9%, as the benefits from higher volume, lower receivables reserves, and productivity more than offset higher employee-related costs and growth investments. Turning to the Industrial and Healthcare Materials segment, sales increased 18.8% excluding currency and 16.3% on an organic basis, reflecting strong growth in industrial categories, particularly in automotive applications, which more than offset a modest decline in healthcare. Adjusted operating margin increased 190 basis points to 12.3%, as the benefit from higher volume more than offset higher employee-related costs. Shifting to our outlook for 2021. While there is a continued high level of uncertainty from the pandemic and tight supply chains, we have raised our guidance for adjusted earnings per share to be between $8.40 and $8.80, a $0.75 increase to the midpoint of the range. The increase reflects the strong performance in Q1, as well as an increased outlook for organic sales growth for the balance of the year. We now anticipate 9%-11% excluding currency sales growth for the full year, above our previous expectation, driven by both a higher volume outlook and the impact of higher prices. We've outlined some of the other key contributing factors to this guidance on slide 12 of our supplemental presentation materials. In particular, the extra week in the fourth quarter of 2020 will be a headwind of a little more than one point to reported sales growth and a roughly $0.15 headwind to EPS to 2021. We estimate Q1 benefited by roughly $0.15 based on the shift in the calendar and anticipate then a roughly $0.30 headwind in Q4. As noted earlier, we estimate the pre-buy benefit to Q1 was roughly $0.10 of EPS, which will come out of future quarters, mainly Q2. The anticipated tailwind from currency translation is roughly two points to sales growth and $25 million in operating income for the full year based on recent rates. The majority of our 2020 temporary cost reductions have come back in at this point. The exception is our belt-tightening costs, travel expenses, for example, which have remained low to start the year, with many of our employees still on lockdown or working from home. We expect these costs to come back in later through 2021. Finally, given the increased outlook for earnings and working capital productivity, we're now targeting to generate over $675 million of free cash flow this year. In summary, we delivered another strong quarter in a challenging environment, and we remain on track to deliver on our long-term objectives to achieve GDP plus growth and top quartile returns on capital, which together drive sustained growth in EVA. Now we'll open up the call for your questions. Thank you. Ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you're using a speakerphone, please lift your handset before entering your request. To accommodate all participants, we ask that you please limit yourself to one question and one follow-up, and then return to the queue if you have additional questions. One moment, please, for your first question. Thank you. Our first question comes from the line of Ghansham Panjabi with Robert W. Baird & Co.. Please proceed with your question. Thank you, ma'am. Hi, everybody. Hope everybody's doing well. Hello, Ghansham. First off, congrats on 1Q. I guess as we think out ahead, it's still pretty early in the year. Your core sales guidance is now 9% of the midpoint versus 5% previously. Clearly, you have a pre-buy in 1Q that may come at the expense of 2Q. You have tough comps in some businesses, and then you have the India and Brazil and other parts of the world virus flare up. I guess in context of that and what you've called out in the past in terms of limited visibility on a go-forward basis for your businesses, being that they're short cycle, I guess, what gives you confidence to be able to raise organic sales guidance this early in the year? Also, in terms of share gains, are you embedding any sort of future share gains in that? Thanks, Ghansham. This is Greg. Yeah, just maybe to give you a view of how we're thinking about it. When we look at the full year, obviously in the first quarter, we delivered strong volume growth of about 9%, which adds a little more than two points to the full-year growth rate. We look at the second and third quarters, which obviously Q2 last year was the trough in the pandemic for us, and we still had a decline of about four points, in the third quarter last year as well. Just looking at if we can recover the declines that we saw in the businesses most impacted last year by the pandemic in Q2 and Q3, those quarters would add another four or four and a half points of growth to the full-year growth rate. Between Q1 and just recovering the declines that we had last year in Q2 and Q3 will get us to about seven points. Then in addition to that, you'd be looking at an impact from the incremental pricing actions that we've talked about, given the inflationary environment this year. That's kind of how we've thought about getting to that 8 to 10-point range. The strong growth we had in the first quarter, in addition to recovering the volume declines that we had last year, plus the incremental impact of the pricing. Okay. For my follow-up question, in terms of April, are you seeing the deceleration as it relates to the pre-buy that you called out? Also for the LGM, LPM, I should say, advantage markets from last year, so the packaged food, et cetera, that benefited last year, are you seeing the comparisons change dramatically associated with that, or are you still seeing elevated demand? Yeah. Overall, April, the trends early on, broad-based, are continuing what we saw in Q1. The impact of the pre-buy from the pricing is now we're just starting to see visibility of that to our orders, because when we receive the orders, we continue to ship into early April. We are starting to see, as far as order trends, that the impact a bit from the pre-buy. Overall, right now, we're seeing some of the trends continuing into Q2 of what we saw Q1, which further reinforces the guidance that Greg just spoke to. As far as, if you look at it from the market perspective, and you asked about share a little bit, because we have a little bit of share movement, each quarter. We believe share in Q1 was comparable to what we had in North America the last couple of years, over the average. In Europe, we captured some of the share we talked about that we had ceded a year or so ago, within the quarter as well. All that data is not finalized. That's based on our estimates. The markets overall for mature regions, actually, we believe moderated in Q1, and that's off of a very tough comp of Q1 of last year, Ghansham. That's kind of already baked in a little bit of that, tough comps, if you will, from last year, as far as the growth within the markets, what we're seeing. Conversely, what we're seeing in emerging markets, as we said, those are up significantly, within LGM. China was pretty soft Q1 of last year and was soft relatively throughout much of the year. We saw a big strong performance here in Q1 and would expect as that economy continues to rebound, we continue to see a good strong momentum on volumes and so forth within that business. Thanks so much, Mitch. Absolutely. Thank you. Our next question comes from the line of Anthony Pettinari with Citigroup Global Markets. Please proceed with your question. Good afternoon. I was wondering if it's possible to say when you'd expect to see price-cost balance to get in LGM. Understand that you have a lot of offsets on restructuring savings, how many quarters will it take you to get caught up, with the pricing initiatives? Given a really unprecedented raw material inflation environment, are there any sort of special price increases or special measures that you're undertaking to recover costs? Yeah, thanks, Anthony. I think, to the last part of your question, of course, at the beginning of the year, particularly in North America, or really at the end of last year in North America, we started to see their spike in chemicals and films with propylene going up. We did implement a surcharge there, and I think we've also implemented a surcharge in a couple other regions as well, when we've seen some chemical increases through the first quarter. At the same time, though, as we moved through Q1, we started to see inflationary pressures continue to increase, as I talked about a bit earlier, and we expect more of a sequential increase here in the second quarter, probably in the mid-single-digit range from Q1 to Q2 in particular. From a perspective of managing that or covering that, we always take a two-pronged approach, as you've heard us talk about before, looking at material cost reengineering to take cost out, as well as reducing pricing over, or increasing pricing to cover the rest of that. I think overall, we're looking at over a period of time continuing to be able to cover the inflationary pressures between those two levers. Typically, we do have a quarter or so lag, as we've talked about before as well, and we'd expect to see a similar level here, this year. We're seeing the Q1 year-over-year still had some price down from some of the deflation we had last year. Okay. That's very helpful. Then just on the chip shortages and any potential impact to your global automotive business in IHM or RFID. We've heard about that impacting readers. Any kind of finer point you can put on the impact of the chip shortage, either in the quarter or maybe the risk for the remainder of the year? Well, Anthony, we're seeing, if you talk about end markets, automotive being a good example, we definitely would be impacted by whatever's happening in the end markets there, and the chip shortage would be impacting that. We talked about our strong growth, and that's including in automotive in Q1, even adjusting for the easier comps. That's definitely something that should be part of your outlook. It's part of ours for sure. We think there's also going to be some pent-up demand for automobiles as well. That's something that we would see as a bit temporary, if you will. More broadly, if you think of RFID, from our own supply chain standpoint and so forth, we feel that we're in a good position to continue to meet our objectives for this year, next year, and so forth. We've had to jump through a few more hoops, moving things around between various suppliers and so forth. We feel that we're in a good position overall, from that perspective. Thank you. Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question. Yeah, thanks for taking my question. Just maybe a follow-up on the raw material side. Just given all of the supply-related issues, the surging raw material issues, did you have any issues in actually getting material for the quarter, or do you foresee any for 2Q? As best you can tell, are you in a similar boat as your competitors, or did you maybe fare this better, just given your scale? I guess, how should we think about that? Well, we absolutely had a lot more hoops to jump through here in the quarter, particularly because of what happened in North America, John, with the Texas winter storm, as I called out. We were able to leverage our global scale, sourcing material from various regions, as well as just our size overall. Yeah, this definitely had an impact in the entire industry, including us on lead times. Our lead times were a bit longer than the normal 2 days. They were a few days since that Texas winter storm, and continue to be a little bit at elevated levels overall. Yes, it has impacted lead times, not our ability to overall meet customer demands. As far as on a relative basis, we haven't seen the share data for North America specifically yet, so can't comment specifically on that. We feel that we were probably in a better position on a relative basis than the broader market. Got it. Fair enough. Maybe you can just speak to, on the RFID front, obviously some really solid volumes, and it sounds like even your excitement level, which has always been pretty high here, it sounds like it may be even higher, and the investment that you're putting into it may be stronger. I guess, how should we think about just given all the pilot programs you've been doing, what seems to be COVID kind of putting an incremental light on the importance of supply chain management, I guess, how should we think about the ability for at least the next 12 to 18 months call for this business to even accelerate from the high levels that it's at right now? Well, John, you say our level of excitement's increasing. Maybe we were understated in the past. We've been consistently energized about what this business can do. As far as what the next 12, 18 months, we've laid out that we expect this business to be able to grow 15%-20% over the long term. We continue to have that conviction. As those get on to be built upon ever larger numbers, it has an even greater impact on the overall growth trajectory of the company. As we said, we have a number of years still ahead of us on just retail apparel adoption. We see huge opportunities in other categories, food and logistics as examples. We're looking to further build on our RFID capabilities as we build out the Intelligent Labels platform. It's very consistent with what we've been talking about, and we continue to be energized by the opportunities that lie ahead. Thank you. Our next question comes from the line of Jeffrey Zekauskas with JPMorgan Securities. Please proceed with your question. Thanks very much. Your operating cash flow in the first quarter was $200 million. Normally it's a really low number relative to the other quarters. It looks like you managed your payables differently than you've done it historically. That usually payables don't change very much year-over-year, this time maybe they were up $150 million. Are you doing something different in working capital? Hey, Jeffrey, this is Greg. On working capital, I think it's a number of fronts really that we've been driving. One is obviously last year at this point in time, we were seeing customers stretch payments a little bit. DSO had gone up a bit last year, and this year that's back down seven days or so, better than it was a year ago. We've also improved our inventory turns. Our DPO isn't too much different now than it was at the end of Q1 last year. It's really just the change from prior year. We did have, as we talked about last quarter, just given the calendar shift, a little bit more of payments that otherwise would've flown into Q1 that went out in Q4 of last year. That's really the biggest difference on a payables perspective when we look at this quarter versus others. It's not that we've made a significant change in terms or other things on a more ongoing basis. In your Label and Graphic Materials business, when you think about your China volumes. Do you think that they were unusually strong in the quarter? If they weren't and they kept on at this level, what might the volume comparison be year-over-year? Yeah, Jeff, I'm not sure exactly. The China volume was quite strong, and it's coming off of a weak comp. China last year was down. That's where the pandemic started, and it was relatively anemic through most of the year. The comps are not as easy, I'd say, going through the rest of the year, but still relatively easy based on what generally overall GDP is doing within China and so forth. We do expect, we've got tougher comps, if you will, in the mature regions and a little bit easier comps in China as an example. Maybe I should have asked it differently. Sequentially, did China change very much? Sequentially- Yeah, China had strong growth in the quarter over prior year. Last year is obviously when we saw more of the impact from COVID-19 early in Q1 of last year. China started to recover a bit in Q2 last year and then recovered more in the back half. The comp is certainly a different impact this year in the first quarter. I think from a run rate perspective, we continue to see some improvement, but a lot of year-over-year growth this quarter was really due to the comps from last year. Yeah. Jeff, Q1 on just a pure sequential is above Q4 overall. Thank you. Our next question comes from the line of Adam Josephson with KeyBanc Capital Markets. Please go ahead. Thank you. Thanks. Good morning, Mitch and Greg, and congrats on another really good quarter. Thank you. Greg, you raised your organic sales growth range by four points, and if I heard you correctly, I think incremental price is about a point of that. Please correct me if I'm wrong there. Assuming your volume expectation went up by about three points for the year, can you just talk about which regions and end markets particularly surprised you to the upside in the quarter such that you moved the range up by as much as you did? I guess price we would expect to be a couple points this year, given inflation in that kind of mid-to-high single-digit range. Again, from a year-over-year perspective, price was down a little in Q1. We'd expect it to be up as we move through the course of the year, given the price increases that were taking effect at the tail end of Q1 in particular and early here in Q2. We did raise organic, or the volume growth, I guess maybe not quite as much as you indicated, but we certainly raised it just based on the strong growth that we saw coming out of the first quarter across the portfolio, really. As Mitch already talked about, in April, we're really seeing the rebound, and especially in the businesses that were most hardest hit last year. Looking at the year-over-year comps in April isn't as meaningful, just given that was really the trough month for a lot of the declines last year in RBIS and Graphics and IHM. Overall, net of the price increase pre-buy, continuing to see strong volumes as we entered April. That's what gave us confidence to increase the range for the year. Adam, just to build on that. Yeah. If you look at our shift in our growth outlook for the year, when we were at Investor Day, we laid out our long-term objectives of 5%+ CAGR through 2025 ex currency. We said from 2022 beyond, it'd be 4%+. Basically what we were communicating is we couldn't really tell the timing of the recovery and how quick it would come back. We knew by 2022, between this year and next, it would be fully back. It seems to be coming in a bit quicker than our assumptions were originally. Definitely things are picking up faster than we had anticipated for the reasons that we've talked about and Greg's referred to. When you think about long-term perspective, think about it as we weren't sure exactly what the pace and timing of the recovery would be. It seems to be happening a bit quicker than anybody had previously known. I appreciate that, Mitch. Just one follow-up on that. You had really strong growth in China, which is obviously mostly rid itself of the virus by now. Brazil is almost the exact opposite, and it's one of the worst hit countries in the world, and yet those were two of your strongest countries in 1Q, if I heard you correctly. What is the common denominator here in terms of the strong growth you're experiencing? Well, one, there's the general, I mean, the common denominator is e-commerce and focus on consumer packaged goods broadly. Specifically within those, it's a bit different. In Brazil, they've had a huge surge in COVID-19, which has a normal migration we've seen elsewhere towards consumer packaged goods, but you also have a lot of stimulus. A lot of money in a lot of people's hands, and they're spending it. That is very different than what we're seeing in China, of course. Thank you. We now have a question from the line of Neel Kumar with Morgan Stanley Investment Research. Please proceed with your question. Great. Thanks. Can you just give us a sense of what's embedded in your full year guidance in terms of incremental margins for the consolidated company and by segment? Is it still fair to expect a stronger margin step-up in RBIS and IHM, just given a higher proportion of value-added categories? Yeah, I guess broadly looking at the year, as we talked about when we came into 2021 in our last call, looking at high level coming into the year, maintaining or even growing a bit our margins year-over-year, with the biggest part of that growth coming from RBIS obviously, which was depressed last year, particularly in the second quarter when the trough of the pandemic. Looking at that to recover closer to or maybe better than 2019 levels within RBIS, and then continuing to move IHM towards its long-term target. We would expect to continue following that path as we look across the course of the year and continuing to drive growth, particularly in those segments. In LGM, we did grow margin two points last year. Obviously, with the inflationary pressures here this year, wouldn't look for as much margin growth in LGM as we would see in the other segments in 2021. That's helpful. Then within the graphics business, you realized 9% organic growth in the quarter. In the past, I think you've talked about this business historically taking about four to six quarters before you recover from a downturn. Could you just discuss some of those drivers of strength and factors that would anticipate a recovery? Just generally, I would say it's the increase that you would normally see, compounded by people have spending more time on focusing on customizing their cars and putting on car wraps and so forth. Then we also believe we've captured some share, particularly here in North America. Thank you. We now have a question from the line of George Staphos with Bank of America Securities. Please proceed with your question. Thanks. Hi, everyone. Good morning and good afternoon. Thanks for all the details. My first question was going to focus on RBIS and kind of the first part of that, in particular with Intelligent Labels. The 15%-20% long-term target and the 20% growth that you saw in the first quarter is certainly very good. If there was a gating factor in terms of demand or the ability to grow even beyond that, where would it lie? Would it be your customers' willingness to trial and have the capital to do these trials? Is it on the Avery side in terms of your ability to manage that type of growth, or is it in the supply chain? How should we think about that if there is, in fact, potential for growth beyond the current range? Yeah. We think the 15%-20% is the right range overall, George, as we've reiterated. As far as the gating factor, if you look at within apparel, it's not our ability to roll this out or anything, it's just there's a normal adoption curve as you go through these things. When you actually go to first adoption for a particular retailer or brand, there's a big surge for that individual retailer brand, creating tougher comps for the next level of rollout, so forth and so on. We think that's the right target overall for the business. That's on apparel. If you look outside of apparel, it's very nascent, but we see a huge amount of opportunity there and a lot of pilots going on. It's where apparel was five, six years ago. We expect the lead time between much greater adoption and it being at the pilot phase to be shorter than what it was in apparel. That's essentially where it is. Very different whether you look at apparel, which is the primary driver of growth, if you look at growth dollars right now and for the coming years, and the newer categories we've talked through. The only other thing I'll say is the pipeline has been up quite significantly within apparel even, so that was an accelerant. What happened with COVID-19 was an accelerant within the apparel category, specifically from where we were 12 months ago. We expect that we'll continue to see momentum and rollouts from those customers that we're working with now. Thanks, Mitch. That's very helpful. Second part of the question, I'll throw in my other one. I thought I heard you say that within RBIS, you had some benefit from releasing reserves on receivables. If I heard that correctly, could you quantify that? If I didn't catch that correctly, just state what you were getting at there. If you could talk about the other costs. I think you said the majority of the other temporary cost savings have come back into the P&L, but there's still some amount related to travel that hasn't come in, recognizing that's not going to come in until the business actually can sustain that, right? Because you're required to travel and so on for commercial purposes. How would you parse that? What's come in, what has yet to come in from the temporary cost saves? Thank you. Thanks, George. Just on your first question, this is really about in the first quarter of last year, if you recall, at the start of the pandemic, when really retail apparel started to get impacted heavily in the month of March. We saw some delays in payments and some things happening in the market there where we took more receivables reserves. We since worked through that through most of last year. It wasn't really an item in Q1 of this year. It's really just more about the comparison to prior year, where we had a headwind last year in the first quarter that didn't repeat this year. On the temp cost piece, as we talked about earlier, last year, we had about $102 million of temporary cost savings, and that was split into a few buckets. One was really volume-related items, that was about half of the overall savings. That's items like temporary cost reduction, overtime reduction, some furloughs, et cetera. The majority of that, by the way, was really in Q2 of last year when we had the volume trough. Another portion of that was incentive compensation, and the remainder was belt-tightening costs such as travel and other type of expenses like that. The volume piece has clearly come back as we saw volume return late last year and into the first quarter, as well as the incentive compensation pieces coming back here in the first quarter of 2021 as well. It's really that last piece around More discretionary type of spend, belt-tightening type of spend that we would expect some of that to have come back already in Q1 and the rest to come back as we move through the year and people start traveling more and things like that. We still would expect the majority of those savings to be a headwind this year versus what it was a year ago. That would reduce a little bit, particularly in Q2, where we had the bulk of that savings last year, that would reduce a little bit of the flow-through from the incremental growth year-over-year as well. Thank you. Our next question comes from Josh Spector with UBS Securities. Please go ahead with your question. Thank you. Yeah. Hey, guys. Thanks for taking my question. Just on the LGM margins and to kind of follow up on some of the price cost kind of dynamics here, I don't know if you could provide us some context of what you think the exit rate is for LGM this year, given what you guys stepped up last year over 2019. Do you think, is that a sustainable level? Margins have stepped up for you and key peers. What makes you confident in the margin level of that business? What are some of the puts and takes we should think about? Yeah, thanks, Josh. I think, we don't give margin targets by BU, I guess, right now for the year. When we look at where we exited last year and we talked about, or I talked about a few minutes ago, and I think in our last call, our focus on margins for the year, we really expected more growth in RBIS and IHM. LGM had already grown a couple of points last year, as you said, looking more to hold that this year. We've done that obviously in the first quarter, it's not just really about price. It's been a heavy amount of volume growth that we've talked about in Q1, as well as a significant amount of productivity. A lot of the restructuring costs that we talked about came in LGM, particularly in the graphic side of the business, but also with some footprint actions in North America over the last year or so as well. It's been a combination of driving productivity and continuing to drive that over time, the ongoing every year productivity, as well as periodic restructuring type of productivity that's helped drive those margins in addition to the strong volumes that we've seen recently. Thanks. I appreciate that. Just as a follow-up, talk about the raw material increases and the impact of that near term. How about any cost impact that's kind of baked into your thoughts for the next couple of quarters for maybe using a different formulation that might be more expensive to supply a customer or logistic costs that might be added in this current environment? Is there anything that you would call out as kind of more temporary over the next couple of quarters that's built in? Well, I think in addition to raw material costs, we have seen cost increases, especially in ocean freight. We've seen cost increases even in things like pallet costs, for instance, as wood cost has gone up a little bit in certain regions. When we think about inflation, we're looking at it more broadly than just materials. We're looking at all of our input costs, freight and supplies and other things as well. Those are areas where we look to get more productive where we can through productivity actions, and then also obviously increasing price. We take all those things into account when we think about pricing actions or surcharges on freight and things like that also. Yeah. Josh, just to build on, just broader context here. As Greg said, our objective, we're an EVA-driven company looking from the optimum point between organic growth margins and capital intensity. We had expanded LGM margins quite a bit going into last year. We said our objective, as Greg already said, was to hold it this year. That's the overall context. In Q1 specifically, if you recall, we had accelerated a number of restructuring actions. We still have the temporary cost savings, as well as the fact that we had the variable flow-through of the pre-buy happening. The margin you see, we remain confident in our ability to hold the margin level based on what we see now, hold the margin level that we had of last year. Now, that is a total across the regions. A lot of the cost pressures, both raw material as well as the other factors that Greg called out, are disproportionate in Q1 were in North America. North America is actually having a profitability challenge right now as far as where they are. The average doesn't necessarily tell the story of what's happening within each region. I know a lot of us here sitting in the States can see things more of what's happening here. There's definitely a little bit more of a challenge there that we're working through and, both from driving productivity, working with our supply chain partners, as well as raising prices right now. Thank you. Our next question comes from the line, Rosemarie Morbelli with G.Research. Please proceed with your question. Thank you. Good morning, everyone. While I recognize it is a small piece of your business, but I am talking about healthcare, and I know you have great expectations for that business. Can you touch on what is behind the decline? Is it more a question of difficult comps versus higher demand last year? Are there other underlying reasons for it? Yeah. The healthcare portion of IHM is really two components. One is our kind of medical tape business, and the other would be what we call personal care tapes, such as diaper tapes. When we look at medical tapes over the last number of quarters, we've seen just given a reduction in the number of elective surgeries and things like that, a bit of a reduction that we think we're kind of working through at this point, but a bit of a reduction over the last few quarters of medical tapes as a result of some of those type of activities being lower than they normally would be. Where we actually saw a decline in this quarter was in diaper tapes. A year ago, we actually saw an increase there, partially due to some of the surge and stocking up by consumers at the beginning of the pandemic in the U.S. and Europe in particular. We're just seeing a little bit of a comp headwind year-over-year on the diaper tape side in particular. All right, thanks. Looking at the Smartrac acquisitions, have you seen any benefit in terms of expanding your RFID in markets such as auto, food, and other markets, which they were bringing some business into? Yes, absolutely. Smartrac has been a very fortuitous acquisition for us thus far, given just the continued ramp across all end markets, specifically your question around industrial and automotive applications. Those actually, as you would expect, given the end markets declined a bit since the acquisition due to COVID-19. As far as the pipeline and the customers we're working with, a number of programs where we've already got ramping up adoption right now, we do continue to see good opportunity there. The key element here was the end market access you mentioned, Rosemarie, as well as the just broader capabilities. They are very complementary to what we had as a legacy RFID business as well. Overall, the acquisition is meeting and exceeding our expectations on top and bottom line. Thank you. Our next question comes from the line of Christopher Kapsch with Loop Capital Markets. Please proceed with your question. Yeah. Hi, thanks. Mitch, in response to a prior question, you mentioned that some of the disruptions and higher raw material costs were more acute and skewed North America. I'm just wondering if that would imply that your pricing actions were more aggressive also in North America, and I'm really curious if the pre-buy, therefore, was more pronounced in North America. I'm curious further that the outsized growth in emerging markets, I was wondering how much they're benefiting from pre-buy. Yeah. Without getting into too much detail, overall, it's not just by region, it's also by category. Films and chemicals is where we've tended to see the broad-based level of inflation in Q1. North America definitely was feeling it first, and it's where we announced some of the first price increases in the quarter. Since then, U.S. kind of led the way, but the rest of the regions have been following as far as the raw material inflation that they're seeing. When you look at a sequential Q1 to Q2, it's pretty broad-based overall. As far as the pre-buy, we're seeing elements of that in a number of regions. North America is definitely one, and then some of the emerging markets as well. Specifically China is where we believe that we've seen some detectable levels of pre-buy. On the margins in the LGM segment, you mentioned that volumes, but also mix contributed, and makes sense on the mix with Graphic, some Reflective recovering stronger than you expected, and with the outsized growth in emerging markets. Because you've said in the past that emerging markets carry higher margins than the more mature Western markets. I'm just wondering if any way you could parse out the margin benefit from volume leverage versus mix, and in terms of the margin improvement in the LGM segment. Thanks. Yeah, Chris, I don't know if I'd parse out specifically. Clearly, there's a benefit from both, just the strong volumes overall on the label and packaging material side. We saw that in the base. We also saw strong volumes on durable labels and specialty labels, particularly in a handful of regions as well. There's kind of broad-based strength, not just on graphics and reflective, but also in the kind of durable side of the label business, which typically has a little bit higher variable margins as well. A good mix from strong growth in those areas, as well as just really strong volumes on the base portion of LPM as well. Thank you. We now have a follow-up question from the line of George Staphos with Bank of America Securities. Please go ahead, sir. Thanks very much. Hey, Greg, I just wanted to double back. The comparative factor versus first quarter of last year in terms of the reserves on receivables, what would that have been quarter versus quarter? Few million dollars, $10 million? Just trying to ballpark it. I had a question on sustainability. Yeah, from a year-over-year perspective, we saw an impact, and we talked about this last year in Q1, really on the graphic side of the business within LGM and then within the apparel business is where we saw more of that the first quarter of last year. That was probably in the +10% range from that perspective last year. Okay. Thanks for that. My other question, I was going through your sustainability data, and it looks like you've done a pretty good job of reducing your GHG emissions relative to where they'd been a few years ago, and same thing on waste generation. I know it's not one thing or three things even, but if there are a couple of highlights in terms of what you're doing in those areas to reduce generation, what would they be? Thanks, guys, and good luck on the quarter. Yeah, thanks, George. Yeah, specifically, I would say it was just making it a priority and area of focus. If you recall in the past, if you go back six, seven years ago, we had said we were going to start focusing our engineering teams and so forth, not just on driving productivity on the P&L, but also on capital intensity and improving our capital efficiency overall. We made great strides there. A number of years ago, we then said we also want to shift our focus towards reducing the environmental impact of our business. On greenhouse gas emissions, specifically. A lot of it was just reducing the energy intensity of our plants, as far as reducing the amount of natural gas that we use and so forth, and electricity, and just redesigning our processes specifically on the manufacture of our goods and operations of our plants. Really just an area of focus, and there's not, like you said, one or two big things. It's a lot of little actions, and it's just about setting a goal and measuring progress and performance every step of the way and giving it a lot of the visibility and attention from senior management cascaded on down. As you saw in our new targets that we laid out through 2030, in addition to raising the bar on reducing the environmental impact of our business, both on greenhouse gas and responsibly sourcing materials, we're talking about how we reduce the environmental impact of our products, delivering innovations that advance the circular economy, continuing to reduce the environmental impact of our operations, as I said, and obviously making a positive social impact in our communities. Thank you, Mr. Butier. I will now turn the call back to you for any closing remarks. Thank you. Okay. Well, thank you, everybody, for joining. Once again, I just want to send a huge thanks to the entire team for their tremendous agility and just continued commitment to excellence. Thank you very much. Thank you. That, ladies and gentlemen, concludes the conference call for today. We thank you all for your participation and ask that you please disconnect your line. Thank you once again.