Avery Dennison just posted its best quarter in years, and long-term investors should look past the headline growth numbers to understand what's really sustainable here. The labeling and materials giant grew revenue 10.9% year-over-year to $2.46 billion in its second quarter, with adjusted earnings per share jumping 19.4% to $2.89 — earnings growth nearly double the pace of sales. On the surface, that's the kind of operating leverage long-term investors dream about.
But management disclosed something worth sitting with: roughly half of that organic sales growth, and about $0.25 of the EPS beat, came from customers stocking up on inventory — a pull-forward effect the company expects to unwind in the back half of the year. Strip that out and the underlying growth story is solid but far more ordinary. The Materials Group, which makes adhesives and label stock for everything from shipping labels to food packaging, grew organic sales 9.7% with a 15.8% operating margin. The Solutions Group, by contrast, grew just 2.6% organically, with reported sales actually declining 0.5%. That's a two-speed business, and the slower half still needs to prove it can carry its weight.
Valuation is where the long-term case gets more interesting. Avery Dennison trades around 16.1 times forward earnings — cheaper than identification-technology peer Zebra Technologies at 18.4x, though pricier than packaging-focused Crown Holdings at 12.7x. That's a reasonable multiple for a company compounding earnings faster than revenue, and it hasn't gone unnoticed by institutional money: Insider Monkey's database shows 39 hedge funds held positions in the stock last quarter, up from 29 the quarter before, with Gotham Asset Management increasing its stake 194%. Short interest sits at a modest 3.27% of float, suggesting the bears aren't circling.
For income-focused investors, the dividend profile adds ballast: Avery Dennison has raised its payout for 15 consecutive years, currently yields around 2.3%, and covers that dividend comfortably with a payout ratio near 39% — plenty of room to keep growing distributions even if growth moderates. The company is also spending to restructure, booking roughly $34 million in charges during the first half while generating a similar amount in pretax savings, a sign management is investing in efficiency rather than just milking the current cycle.
So what for long-term investors: the next two quarters matter more than this one. If the inventory-stocking tailwind unwinds as expected and organic growth holds up — particularly in the lagging Solutions Group — this becomes a genuine quality compounder trading at a sensible multiple with a growing, well-covered dividend. If growth fades back toward low-single digits once the restocking effect fades, the stock simply reverts to being an average industrial holding at an average price. Either way, the second half of 2026 will tell investors which Avery Dennison they actually own.