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Avery Dennison Corp (AVY) Q4 2020 Earnings Call Transcript

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AVY earnings call for the period ending January 2, 2021.

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Avery Dennison Corp (AVY -4.43%)
Q4 2020 Earnings Call
Feb 3, 2021, 1:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by. [Operator Instructions] Welcome to Avery Dennison's Earnings Conference Call for the Fourth Quarter and Full-Year Ended January 2nd, 2021.

This call is being recorded and will be available for replay from noon Pacific Time today through midnight Pacific Time February 6th. To access the replay, please dial 800-633-8284 or for international callers +1-402-977-9140. The conference ID number is 21969418.

I'd now like to turn the call over to John Eble, Avery Dennison's Senior Director of Investor Relations. Please go ahead.

John Eble -- Investor Relations

Thank you Meladin. 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 A9 of the financial statements accompanying today's 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.


Mr. Butier has disconnected. One moment please. We'll get him.

John Eble -- Investor Relations

Yeah, let's give Mitch one minute to rejoin.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Okay, thanks John, and hello, everyone. Good day. Apologies for that quick technical glitch there, the line dropped. So, as you can see from our results, we continue to prove our resilience across business cycles as a company. We delivered another year of strong earnings growth with adjusted EPS up 8% and record free cash flow, despite a 2% decline on the top line. We said coming into this year that a key focus of ours in a lower growth environment would be to protect our overall profitability. We delivered on that promise.

Margins, again, expanded significantly, reflecting the successful execution of our long-term strategies as well as the team's fast response in implementing temporary cost saving actions. The result, combined with better than expected volumes in the second half, essentially accelerated the margin expansion we had planned for 2021 into 2020, enabling us to deliver EBITDA margins of over 15%.

Our strong performance reflects remarkable preparedness and incredible agility of our teams who have come together extraordinarily well in navigating one of the most challenging periods we have 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, while continuing to invest in the long-term success of the Company. I'm pleased with the progress we are making on all fronts.

Now, despite our best efforts to protect employee health, we have identified roughly 1,100 confirmed cases of the virus within our 30,000-plus workforce, with the majority of cases reflecting community spread, rather than a work-based source of infection.

Fortunately, over 80% of the employees impacted have already recovered. The recent surge of 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.

In light of the significant challenges throughout 2020, we also took additional measures in support of our employees and communities. We provided additional compensation and benefits in the early stages of the pandemic to reduce the financial impact on employees in some of the hardest hit regions.

We provided supplemental payments to our frontline workers to thank them for their courage and agility in serving our customers' essential needs. And we stepped up our level of community engagement, including an additional $10 million contribution for charitable causes.

I'm pleased with the continued progress we are making toward the success of all of our stakeholders, as evidenced by the fact that we are on track to deliver the vast majority of our long-term financial and sustainability objectives.

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 are focused on the consistent execution of our five key strategies; driving outsized growth in high-value categories, growing profitably in our base businesses, continuing our relentless focus on productivity, being highly disciplined capital allocators, and leading with environmentally and socially responsible practices and solutions. In 2020, we made progress on each.

High-value categories, again, outperformed. We protected, even grew margins, in our base businesses. We delivered $200 million of cost reduction both structural and temporary. We completed two acquisitions, Smartrac, which significantly accelerates our strategies and capabilities to build out our intelligent label platform with RFID and ACPO, which enhances our position in our North American label and graphics materials business.

Lastly, we continue to make solid progress toward our 2025 sustainability goals. We have substantially reduced the environmental impact of our operations, while focusing increasingly on the development and launch of more innovative, environmentally friendly products and solutions.

Now, a quick summary of our results by business. LGM's adjusted operating margin expanded a 180 basis points to just above 15% for the year on a modest decline in revenue. In Label and Packaging Materials, underlying label demand has remained strong throughout the downturn given the increased consumption of consumer packaged goods and e-commerce trends, while the somewhat more cyclical Graphics and Reflective Solutions business declined.

From the start of the pandemic until now, volume trends for LPM have varied more than usual throughout the year. From March through December overall, our North American Label business has grown mid-to-high single digits, roughly double the long-term average for the region, while Europe has grown low-to-mid single digits comparable to the region's long-term average.

And while the mature regions have grown at or above their long-term average since March, Asia-Pacific volumes were below their long-term trend, up low-single digits across the period. This lower than usual growth in Asia was due to declines from March to June before rebounding to mid-single digit volume growth in the second half.

In Retail Branding and Information Solutions, revenue and margins were both down for the year. Following a sharp decline in Q2, demand improved sequentially in the second half with Q4 coming in at 3% organic growth. We delivered more than a full point of margin expansion in the second half, driven by the better-than-anticipated volume and tight cost controls.

Enterprisewide RFID sales grew more than 40% for the year on a constant currency basis, reflecting the contribution of the Smartrac acquisition and organic growth of 9% for the year. Organic growth of RFID rebounded quickly in the second half, up roughly 20%, driven primarily by apparel.

Outside of apparel, we are seeing increasing interest in new applications within food and logistics, among other categories. The momentum in these applications is focused on driving labor efficiency, improving availability of products and the migration to e-commerce.

As the leader in ultra-high frequency RFID, we are positioned extremely well to capture these opportunities, with industry leading innovation and manufacturing capabilities and the best most-experienced team in this space. 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.

And as for Industrial and Healthcare Materials, we expanded margin in this segment for the year despite lower revenue. IHM returned to growth in Q4 and we continue to make progress toward our long-term profitability target here.

To recap, we delivered another year of strong earnings growth and free cash flow despite challenging market conditions. We entered this crisis from a position of financial, operational and commercial strength and we'll emerge from it even stronger.

We are, once again, proving our resilience as a company and our ability to consistently deliver for all of our stakeholders and we remain confident in our ability to continue to deliver GDP plus growth and top-quartile return on capital. We look forward to sharing more about our long-term objectives and strategies to all of you at our Investor Day next month.

And I'll now turn the call over to Greg.

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Thanks, Mitch, and hello everybody. I'll first provide an update today on our performance against our long-term goals and then walk you through our fourth quarter performance and our outlook for 2021.

Slide 11 of our supplemental presentation materials provides an update on our progress against the five-year targets that we communicated in 2017 and recall that this represents our third set of long-term goals after meeting or beating our previous two sets. The consistent execution of our key strategies enables us to continue delivering against our targets with an overriding focus on delivering GDP plus growth and top-quartile returns on capital over the long term.

As you can see, we are largely on track to deliver, once again. Over the four year period, sales growth on a constant currency basis is up nearly 4% annually, with organic growth of 2% annually. While both are below our initial target, largely due to the late-stage recession in this cycle, we are achieving our objective of growing above GDP over this period.

The reported operating margin was 11.6% in 2020 or 12.4% on an adjusted basis, up significantly from roughly 10% in 2016. Additionally, our EBITDA margin was above 15% in 2020. And as always, our focus will continue to be the optimal balance of growth, margins and capital efficiency to drive incremental EVA over the long term.

Our adjusted earnings per share is up over 15% annually, largely driven by the solid top line growth and strong margin expansion. And our return on total capital came in at 18% for 2020, above our 17% target, reflecting top-quartile performance relative to our capital market peers.

And our balance sheet remained strong with our net debt-to-EBITDA ratio below the low end of our target range, giving us ample capacity to continue executing our strategies. Our consistent progress toward achieving these long-term goals reflects the diversity of our end markets, the strength of our position in those markets, and our resilience and agility as an organization to adjust course when needed.

At the same time that we communicated our financial goals through 2021, we also laid out a five-year plan for capital allocation, which you can see on Slide 12. We're tracking well against this plan, starting with strong cash flow generation and we've deployed a total of $3.4 billion over the last four years allocating it in line with our long-term plan.

And clearly, our current leverage position gives us ample capacity to continue investing organically as well as through strategic acquisitions while continuing to return cash to shareholders in a disciplined way.

Now let me turn to the fourth quarter. Overall, financial results were strong with adjusted earnings per share of $2.27, up 31% versus prior year, reflecting better-than-expected top and bottom line performance in each of our segments. We grew sales by 12.3% or 3.2% on an organic basis. And currency translation increased reported sales growth by 2.3 points and the extra week in the fourth quarter increased reported sales by 4.9%.

Adjusted operating margin increased by 160 basis points to 13.5%, reflecting significant margin expansion in each operating segment. Our tight near-term cost controls in this environment combined with the flow through benefit from a volume surge late in the quarter as well as our ongoing structural productivity actions and a benefit from the 53rd week, drove strong margin expansion in Q4.

And we realized $18 million of restructuring savings, net of transition cost in the quarter, due in part to the long-term actions that we accelerated into 2020 particularly in RBIS.

And for the year, we generated $548 million of free cash flow, up 7% compared to 2019. Total capital and IT spending came in at $219 million, higher than recent expectations as we accelerated investment in our high-value categories, particularly in RFID.

And as mentioned previously, our balance sheet remains strong with a net debt-to-adjusted EBITDA ratio at year end of 1.7. And as we've proven our ability to manage through the compounding global crisis we faced this year, we've been putting that leverage capacity to work. For the year, we deployed $350 million for strategic acquisitions as well as returned $301 million to shareholders through the combination of share repurchases and a growing dividend.

Now let me turn to segment results for the quarter. Label and Graphic Material sales increased by 3.6% on an organic basis, driven by the net effect of volume and mix and sales improved sequentially across all regions.

Label and Packaging Material sales were up mid-single digits organically, benefiting from a late quarter pandemic-related surge in demand. And Specialty and Durable Label categories grew high single digits with low-to-mid single digit growth in the base business.

Graphics and Reflective sales were down mid-single digits reflecting modest sequential improvement after rebounding significantly in Q3 following the sharp decline in Q2 as a result of the government mandated lockdown. Looking to segment sales trends by region in Q4; in North America, LGM sales were up mid-single digits organically for the quarter with LPM up high-single digits, while Graphics declined modestly.

In Europe, LGM sales for the quarter were roughly flat on an organic basis, reflecting strong sequential improvement. LPM was up low-single digits, while Graphics declined by high-single digits. And in Asia LGM was up low-single digits for the quarter on an organic basis with relatively consistent growth across the countries.

LGM's adjusted operating margin increased 210 basis points to 15.4% as the benefits of productivity, favorable volume and mix, and raw material deflation net of pricing more than offset higher employee-related costs.

Shifting now to Retail Branding and Information Solutions, RBIS sales were up 11.6% ex-currency and up 3.1% on an organic basis, reflecting continued improvement in both the high-value categories and in the base business, as retailers geared up for the holiday season early on in the quarter.

High-value categories were up nearly 20% organically with enterprisewide RFID sales up 55% ex-currency and up 21% on an organic basis and the base business was down low-to-mid single digits.

Looking at the total apparel business, the value channel outperformed all the other channels and was up 40% organically for the quarter. And adjusted operating margin for the segment increased 210 basis points to 15.7%. The significant margin expansion was driven by productivity initiatives including accelerated structural actions and temporary cost controls along with the better than anticipated volumes. These benefits were partially offset by higher employee-related costs.

Turning to the Industrial and Healthcare Materials segment, sales increased by 0.7% on an organic basis, as the high single-digit increase for industrial categories reflecting continued sequential improvement in trends for automotive applications in particular was partially offset by a mid-single digit decline in healthcare categories. Adjusted operating margin increased by 210 basis points to 12.3% as the benefits from higher volume and productivity more than offset higher employee-related costs.

So, turning now to our outlook for 2021. We anticipate adjusted earnings per share to be in the range of $7.65 to $8.05. We've outlined some of the key contributing factors to this guidance on Slide 18 of our supplemental presentation materials.

We estimate that organic sales growth will be approximately 3% to 7% with the midpoint of that range reflecting continued recovery in our end markets across the segments. The extra week in the fourth quarter of 2020 will be a headwind of little more than a point to reported sales growth and a roughly $0.15 headwind to EPS for the full year.

We anticipate Q1 will benefit by roughly $0.10 based on the shift in the calendar, more than offset by roughly $0.25 of headwind than in Q4. Based on recent rates, currency translation is a roughly two point tailwind to reported sales growth with an estimated $25 million benefit to operating income. And we estimate incremental pre-tax savings from restructuring, net of transition cost of roughly $70 million in 2021.

Given we previously accelerated some 2021 actions into the second half of 2020, the vast majority of the savings represent the carryover impact from actions that we initiated last year. And we also expect the majority of the approximately $135 million in temporary cost savings we delivered in 2020 to be a headwind as markets recover.

Moving to our outlook on the tax rate, based on current regulations, we expect both the GAAP and adjusted tax rates will be in the mid-20%s for the full year. And we expect free cash flow to be more than $600 million in 2021. And finally, we estimate average shares outstanding, assuming dilution, of 83 million to 84 million.

In summary, despite the challenging environment, we're pleased with the strategic and financial progress we've made against our long-term goals in 2020 and we're confident in our ability to continue to deliver exceptional value through our strategies for long-term profitable growth and disciplined capital allocation.

And now, we'll open up the call for your questions.

Questions and Answers:


And thank you very much. [Operator Instructions] our first question comes from line of Ghansham Panjabi with Baird. Please go ahead.

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Hey guys, good day. Hope everyone is doing well.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yes, hello Ghansham.

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Thank you.

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Yeah, I guess first question, just on the LGM strength in the fourth quarter, you know 37% incremental margins year-over-year. I know you mentioned that there was a late quarter surge, but G&R also got weaker, which is higher margin I think, for that segment. So just curious as -- if you can give us a little bit more color on the margin strength.

And then, on the strength in LPM from a volume standpoint in both November and December, was that just a function of expanded lockdowns in Europe and the U.S. or just a much better e-commerce season or whatever details you can provide there would be helpful also.

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Yeah, thanks, Ghansham. This is Greg. So, on the last part of your question, certainly as you said, you can see in the backup slide with the monthly numbers that we saw pickup in the LPM side of the business in November and December. Anyhow, we think that's a function similar to earlier in the year as there were more lockdowns, particularly in Europe and in parts of the U.S., we saw more consumption of packaged goods late in the fourth quarter.

So that was part of what's lifted the volume growth in Q4. And that also then help drive part of Q4 margins for LGM. As we've talked about in the past, we've been driving the temporary cost savings with volumes coming in better than expected in the quarter that helped deliver stronger margins overall.

At the same time, we did have the extra week in Q4. That extra week turned out to be a pretty strong week and we did see that also have about a 30 basis point margin impact in LGM as well as the total Company level.

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Great. And then for my second question on the 3% to 7% in core sales growth for '21, how does that disaggregate between volumes and price the way you see it at current, in context of pulp prices going up and petrochemicals and so on, and where in that range is 1Q tracking thus far on a consolidated basis? Thanks again.

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Yeah, I think, high level, Ghansham, when we think about the range that we have for 2021, so the 3% to 7%, there is a couple overall big drivers. One is, we talked about Intelligent Labels, we still expect to grow in that 15% to 20% pace as we've talked about over the years and as we demonstrated certainly in the back half of 2020. That by itself, given the size of the IL business now, would add about a point to a point-and-a-half of overall growth for the company.

At the same time, when we look versus 2020 and we see the quarters that were hit the hard is Q2 and then a little bit of Q3. If we fully recovered that, we think that would be somewhere in 3 points to 4 points of growth for the year on a full year basis. We've built in about 2 points to 3 points of growth on recovering some of that volume decline that we saw in those most hit quarters in 2020.

So those are a couple of big drivers of the growth that we see year-over-year. At the same time, we would expect in the businesses that were hit the hardest in 2020 to have the biggest growth rates as we see that recovery come through in those segments.


Our next question is from Adam Josephson with KeyBanc Capital Markets. Please go ahead.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Mitch and Greg, good morning and congrats on a really good end of the year.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Well, thank you.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Greg, just one on your margin expectations for the year, it seems like you're expecting roughly flattish margins. I assume you would expect notable expansion in IHM and RBIS and perhaps some degradation in LGM margins given how good a year you had in '20 in LGM. Can you just talk about your margin expectations, either consolidated or by segment?

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Yeah. So, I think in total, when we look at the year and as we're heading into 2021, just as when we were headed into 2020, we targeted and we talked about a year ago in a lower growth environment we were targeting to hold margins and that would still be our expectation this year for in a lower growth environment, continue to target holding margins.

When you think, just like you said, across the company, the range of our guidance assumptions includes a number of different factors depending on the environment and the macro. We would start -- expect to see certainly when you look at the second quarter when we had the trough in some of the businesses, it had a margin impact there. We would expect to see a larger recovery, particularly in Q2.

When we look more broadly, as you know, when we've talked about in the past, our overall focus over time is balancing our top line growth with strong margins and strong capital efficiency in order to drive long-term growth in EVA. And that's how we'll continue to think about it. So, margins continues to be a big factor, of course, and continuing to drive margins, but we're looking at the balance of those two things to drive long-term EVA growth over time.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks Greg. And just one more on the margin issue, so if I look at, from 2015 onward, all of the Company's margin expansion has come from the SG&A line. I think SG&A as a percentage of sales has gone from almost 19% to down to 15% whereas gross margins have been basically flat over that period. This coming year and thereafter, do you think more of your margin expansion is likely to come from the gross margin line or the SG&A line and perhaps why? Thank you.

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Yeah, I think when you look over that long of a period of time, certainly we were -- had a number of initiatives and we've talked about few years ago in RBIS, the acceleration and turnaround there and that included some reductions in SG&A and other areas. So there was some focus on that.

I think when we look -- even 2020, we start to see our gross margins improve quite a bit from the inflationary cycle that we had a couple of years before that. So, we expect to continue driving strong productivity in SG&A over time, but we would also expect to continue to see gross profits improve over time as well.


And our next question is from Neel Kumar, Morgan Stanley Investments. Please go ahead.

Neel Kumar -- Morgan Stanley Investments -- Analyst

Hi, thanks for taking my question. Can you just discuss how your LGM volumes in the fourth quarter compare to the industry and were there any specific regions you would call out where you gained or lost some market share?

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yeah. So Neel, overall, if you look at our -- if you're asking a share question for our LPM business, so Label specifically, we don't have all the market data in for the two regions where we get it. But generally, for the full year, share positions are pretty comparable for 2020 versus 2019.

If you look at where we are specifically in the fourth quarter, in Europe, we are -- our share position is where we want it to be; in North America we're little bit behind where we want to be. So, that's overall for the year. We've been -- our share position has been pretty constant and where we are for fourth quarter.

Neel Kumar -- Morgan Stanley Investments -- Analyst

Thanks, that's helpful. And then just for RFID, you talked in the past about the addressable market in apparel being 30% or so penetrated. What do you think that penetration rate can go over the next several years? And then, more generally, in terms of your 15% to 20% long-term RFID growth guidance, do you think there is upside to that range given the potential acceleration in adoption rates or is the RFID base business already pretty large, such that it will get incrementally harder to beat that?

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yes. So overall two questions there. As far as the apparel adoption rate, so apparel continue -- I mean, the pandemic has really, what we've seen is the second inflection point, if you will, an acceleration of activity not just tier 1, but a lot of tier 2 retailers and brands in addition to tier 1. So, a significant amount of our pipeline is also apparel growth.

We had traditionally said, we're roughly a third penetrated. It's clearly a bit more than that, but we also said over time, we expect the addressable market to increase a bit over time as well. So, that's where we are in addressable market. Still quite a bit of upside overall within apparel and you see obviously huge opportunities outside of apparel. And so, to your question of 15% to 20%, do we see upside to that? Yeah, I mean we see huge opportunity for us. It's really around developing market opportunities and then capturing those opportunities.

We see significant long-term potential here, the 15% to 20% we've created because there is a certain level of just pace of adoptions that we go through and given the size of this business being over $500 million now, as Greg said, it's now adding 1.5 points to our overall growth. So that's a pretty significant amount of dollar growth every year, if you'd look at it from that perspective.

So we're clearly not limiting ourselves to what the upside can be. I think 15% to 20% is the right target where clearly aspirations are to develop this into a much larger business than it is today and we see it having a very long runway ahead of it. And in general to your questions about addressable markets and everything else, we'll definitely be updating all of that at our Investor call -- Investor Day next month.


Our next question comes from the line of Josh Spector with UBS Securities. Please go ahead.

Josh Spector -- UBS Securities -- Analyst

Yeah, hi, thanks for taking the question. Just within RBIS in the base ticket and label business. I mean, there's obviously been some uncertainty on how first half of 2021 would play out given some of the weakness we saw kind of early last year. I guess you've mentioned you'd have more visibility on that kind of after the holiday season. Just curious if you can give us an update on what customers are saying about order patterns and kind of inventories here over the next six months?

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yeah, so generally, holiday was a bit stronger on the average if you will, than retailers were expecting. So that bodes well as far as -- it's too early to say how things are playing out post the holiday. Just the timing of the Lunar New Year. We'd have really easy comps this past week or so. So too tough to tell. We'll have a better read after January and February as we comp through the Lunar New Year.

Overall what you're seeing though is that North American market doing better than Europe. If you look at just apparel import trends alone, Apparel imports in the U.S.; for the full year, they were down close to 20%. If you look at the last six months where the data is available, it was down 11% and it's up a couple of percent, if you look at the last few months. So that does show an improving trend here in the U.S.

Europe, however, continues to be down -- quite significantly down around 20% or so in the last few months. So, bit of a decoupling between U.S. and Europe is what we're seeing right now and generally holiday was a bit better than people had anticipated and we're really going to need a little bit more time than just right after the holiday to get a good sense of where things play out. I'd say Europe is the bigger question for us.

Josh Spector -- UBS Securities -- Analyst

Thanks. So that's helpful. I guess going back to the RFID side of things, I think there is generally a view that with COVID some of the impact might mean some acceleration of adoption there. I guess I was wondering if you can give us a general view of what typically the timeline looks like until a customer first engages with you about the idea you guys work with them to develop it and then it actually rolls out. So we actually might see some of that cash flow through your earnings a bit more.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yeah. Within apparel, the timeline has shortened quite a bit from where it was a few years ago just because there's a -- technology is proven, everybody know that the business case is very robust. As far as learnings, you can translate from one retailer brand to another. So, that's fairly quick. There is not -- the average isn't that great, but say six to nine months is what I would give as an estimate.

Within other categories, it can vary quite a bit. It obviously is longer than that as far as the pipeline -- when it starts from just the business case and then moves into pilot and testing and so forth. So that takes a bit longer.

I would say the biggest area of the pipeline growth that we're seeing, we talked about apparel, having good increases within apparel overall but outside of that, if we look at food, our pipeline is up quite significantly as well as with logistics, up quite significantly, and we're seeing a number of pilots that we expect in the pilot phase, which give us $1 million of revenue or so here in 2021 and assuming they're successful and convert which we're sure -- confident they will, they will turn into $5 million programs, each individual one.

So that's where we are in the food. We've been working for a while. It accelerated a bit in the pandemic along with logistics. We'll see a bit more revenue here in 2021 and we expect that to be a base for more growth going into 2022.


Our next question is from Anthony Pettinari with Citigroup Global Markets. Please go ahead.

Anthony Pettinari -- Citigroup Global Markets -- Analyst

Good morning. Just a follow-up question on RFID and Smartrac. I think when you acquired Smartrac, I think you indicated it could be sort of modestly dilutive in 2020 given integration and interest expense cost. And I think you said margins would be sort of in line with the base business by 2022. Just wondering if that's still sort of accurate, how the business has performed relative to expectations. And the growth rates that you called out for RFID, is there any way that you could differentiate between RFID and sort of the NFC technology that you acquired with Smartrac?

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Well, so overall, we look at it as a combined business and it is integrated, so -- as far as how we go to market and everything else. So, the growth is basically on the combined of the two. We have talked about specifically, if you look at Smartrac, they had about 50% to apparel retail and 50% to auto, food and other category.

So, we will discuss it more about what the market trends are for those end markets, but we won't be calling out separate growth rate for Smartrac versus the overall RFID and Intelligent Label platform. So that's -- as far as your first question, we actually -- it was not dilutive in 2020, we actually -- if you look at our adjusted EPS, well it was actually modestly accretive in 2020. So we were able to execute quicker than expected. We do expect the margins to be comparable to the overall margins for the IL platform, which were above the Company and divisional averages for EBITDA margin.

Anthony Pettinari -- Citigroup Global Markets -- Analyst

Okay. Okay, that's very helpful. And then just, it seems like COVID has pulled forward a lot of technology adoption and you talked to how that's impacted RFID. I'm just wondering on the LGM side, has COVID changed the adoption of pressure sensitive versus glue applied versus shrinked? You know have customers delayed some capex projects or pulled them forward? I'm just wondering if you've seen or if you anticipate any impact from COVID really on the LGM side?

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

I think the biggest impacts are really just what we've been talking about. It's more around just the resurgence of consumer packaged goods. So, we're seeing strong demand in the market and for our business in packaged decoration, particularly in film categories and then also just the e-commerce. So, e-commerce growth has been quite significant. And our business linked to that is growing similarly.

So, yes, we're seeing -- those are the two trends overall. We think the e-commerce trends, while there was a big surge, we think that will be just the new baseline for continued accelerated growth in packaged goods. I think everybody is -- COVID is a good reminder, not just with stay at home, but the importance of packaging for decoration, sanitation, and everything else.


Our next question is from Jeffrey Zekauskas, JP Morgan Securities. Please go ahead.

Jeffrey Zekauskas -- JP Morgan Securities -- Analyst

Thanks very much. How much on average were your raw material cost down in 2020 and how much on average do you expect them to be up in 2021?

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Yeah Jeff, this is Greg. So, overall and across 2020, we saw kind of in the low-to-mid single-digit range in terms of deflation across the year. And that was a little bit different as you moved through the year, more of that was earlier in the year. As we got into Q4 and we look sequentially from Q3 to Q4, overall, it was relatively stable, but we did start to see some pressure midway or toward the tail end of the quarter, particularly on chemicals and films.

So in propylene in particular and polypropylene, we started to see that pressure in the U.S. late in Q4. We see that continuing here in the first quarter and then starting to also rise in Europe at the same time here in Q1. So right now, based on what we've been seeing, we would expect somewhere in the low single digit inflation based on what we've seen so far without predicting what may happen as we go forward.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yeah. And Jeff, just to add to that, we are right now evaluating -- big question is, how much of this inflation is temporary versus sustaining. And so, from a pricing standpoint, we are evaluating price increases, announced a surcharge in one region for propylene -- polypropylene, sorry, and evaluating another region and so forth. That's probably one of the bigger questions around the guidance specifically for LGM is, what's the volume environment? And is the volume environment linked to overall consumption? And what does that do to the commodities markets and our pricing actions that get linked to that?

Jeffrey Zekauskas -- JP Morgan Securities -- Analyst

Okay. And your Industrial and Healthcare businesses had really nice margins in the second half of 2020, that is -- they were up above 12%. Is that a new level of margin for that business? And then secondly, you donated $10 million to a charity. Was there an earnings per share impact from that extra $10 million that you donated and if there was, what was the EPS impact?

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Sure, Jeff. So your second question first. So, yes, that is the increase that you see -- the $10 million is on the corporate expense line in Q4. That's why corporate is higher than usual and so that is in our numbers and we didn't adjust that out or anything else. So that would be roughly a $0.09 impact to Q4.

And then, as far as IHM, we're still targeting our objective here for 2021, it was 12.5% operating margins or more for this business. We're not quite there yet. The team has done a great job and I will say it, under Greg's leadership, Greg has been overseeing this group of divisions for the last couple of years and our objective, if you look at the high end of our range, is to be within that targeted range by next year. So, continued margin expansion is the goal.


Our next question is from George Staphos, Bank of America. Please go ahead.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Hi, everyone. Good day. Thanks for taking my question. Congratulations on the year. Hey -- I wanted to take a step back and talk a bit more about return on capital, Mitch and Greg. So, Avery has a long successful track record, you pointed to that at the beginning of your presentation in terms of capital allocation, return on capital. And that's all well and good. We have seen over the last three to four years and it's not just the result of COVID, the return on capital for the Company begin to tick lower. If you've evaluated that and you agree with that point, what do you think is driving that?

And then, relatedly, it looks like COVID has really changed the growth outlook for a lot of your businesses, whether it's RFID or LPM. You're going to have to spend money -- it sounds like you've already begun to do so on capacity. How do you continue the return on capital trajectory that you've been seeing longer term as you are now needing to spend behind this growth? And then I had a follow on.

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Yeah, thanks George. This is Greg. So, I think when we look at our return on capital, when we set our targets back at the beginning of 2017, we'd come out of 2016 with about a 17% ROTCE. And the last couple of years has been, some of the pension impacts, when you look at those in '17 and '18 and you can see the adjusted numbers in the appendix of our slides. But when you adjust out that, we're roughly 19% the last couple of years and in that 18% level here in 2020.

So we feel like we have been continuing to expand ROTCE above the baseline where we started out back in 2016 and that, with this year, of course includes a couple of acquisitions that we're in the first year of still. So, feel good about the progress we're continuing to make on a return perspective and continuing to be in the top quartile among our capital market peers there.

And when we think about investments going forward, we -- and Mitch talked already about RFID overall is EBITDA margins above our average for the segment in the company and that generates good returns for us and we continue to invest in areas where we think will have strong returns.

So, a lot of our capex is in areas like RFID and it's also in other high-value segments like specialty labels within LGM or industrial within IHM and also looking at some of the emerging region. So, we'll invest in areas that we think are high return and where we can continue to generate strong return on capital.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yeah, George. And just to reinforce, the overall theme here is GDP plus growth and top-quartile returns on capital and these levels were both [Phonetic] and that is our continued focus and that's a recipe for superior value creation over the long term.

And when we had set out the 2021 objectives back in 2017, we did say that in capital efficiency, we've gotten into the top decile of efficiency and that we would go through a period of recapitalization, both organically and be looking for M&A and when we haven't done M&A for a while and then started doing M&A over the last four years, it takes a while, from a returns perspective, for the returns to match the invested capital base that you have in there.

And once we have a series of these in the years going forward and so forth, and it all starts comping in and the returns are catching up on acquisitions you've done a few years ago, you'll see that continue to flow through.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Okay. Understood on that. I guess the other question that I had. Again, a lot of my questions were answered earlier. If you think about where you're applying capital going forward and trying to grow the business, are these areas that you would expect would have higher margin, higher return on capital. Are they areas where, in some ways, you are applying capital defensively because you don't want to see some of these markets move toward your peers in terms of share? I know that's a broad question and hard to answer in a sense or two. But how would you have us think about it? Is it likely to see -- would you like it to generate higher margin and higher return on capital over the next two to three years and lead to share gains? Thanks and I'll turn it over.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yes. So we're investing -- I mean if you look at both our high value segments and our base, we look at EVA and returns. We don't look at just the average. We disaggregate it and for us it's continuing to invest in businesses where we have good EVA potential and that's in both the high value segments and the base.

It would be disproportionately in high value categories, particularly in RFID. So, that's been a significant part of our growth investments and as far as the base goes what you've seen in our investments, we just go back over the last five years when we need to invest for growth, we also concurrently invest for productivity.

So if you look at the investment we did in Europe a few years ago, we did a significant expansion where we needed capacity to one of our plants and we subsequently were able to take offline some capacity to drive productivity. So both enabled growth for that market at the same time as lowering our cost base. So a good -- very good return outcome from that perspective.


Our next question is from John McNulty, BMO Capital Markets. Please go head. Mr. McNulty, your line is open. And moving on to the next question is Christopher Kapsch with Loop Capital Markets. Please go ahead.

Chris Kapsch -- Loop Capital Markets -- Analyst

Yeah, hi. I'm sorry to follow up on the RFID business and if I look back, it looks like you closed on Smartrac early March. So, it's probably just weeks before the pandemic lockdowns ensued. And it sounds -- generally the consensus is coalesced around this idea that the pandemic has increased your addressable market opportunities in RFID.

So I'm curious to peel that back a little bit more. If you look at the apparel and food applications, it looks like what's happened is the behavioral changes have maybe accelerated the adoption in those applications, but I'm curious about, in the case of logistics, because you're talking about having traction in logistics, it sounds like maybe the pandemic influenced the business case there.

So, I'm just wondering if that's a good characterization and because if I think back to early days of item level apparel adoption, the business case was very clear, right. It was inventory accuracy, preventing stock out, the consequential sales lift and eventually that dovetailed into this transition to omnichannel and e-commerce.

But help me understand like what's the business case in this logistics opportunity, it sounds like it's compelling, it sounds like it's -- there is more visibility in and around your traction there. So, I'd be interested to hear your thoughts on that. Thank you.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yes. So, Chris. The business case is really around increasing productivity, becoming more touchless in your operations and that's some of the fundamental base case of what you had to look for apparel you have in these other categories and that's specifically why we targeted these other categories.

We looked for end markets that shared some similar characteristics and some challenges as what apparel is going through albeit in a different form. So, absolutely, pandemic accelerated a lot of the activity within the pipeline. You say adoption has not yet really had a significant move around adoption levels because it takes some time to work through the pipeline.

I commented earlier about some of these programs more moving into pilot. The pandemic during the height of it in the spring or the early phases of it, I should say, we commented that it actually slowed down, the amount of activity when restaurants were closed as an example. There was fewer opportunities for some pilots, those have all revamped up again here in the second half and I talked about the momentum going into 2021.

So the use case is really around just becoming more touchless as far as interactions, driving productivity, wanting increased visibility, reducing waste. RFID is a huge opportunity to reduce waste, so enabling companies that meet their own sustainability objectives. Those are all included within that and we see a tremendous opportunity there. So that's the use case you should think about as very similar to apparel albeit in a different form.

Chris Kapsch -- Loop Capital Markets -- Analyst

Okay, thanks for that. And then, just as a follow-up, I mean, the item level apparel is effectively backward integrated into inlays, I mean -- and I guess it's comparable in some of these other applications. So, I'm just wondering if it's -- given that you are -- there are different effect of technologies and therefore maybe turnkey systems, I'm wondering if the margin profiles of these different applications evolve, are they similar or are you going to see more of a margin opportunity tied toward apparel and food categories? Thanks.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yes, so really. For each end market, there's going to be elements of it where we are providing, as you say, just the base inlay and then where we're actually providing a full solution set managing the data, printing the data, working in supplying the solution around hardware and so forth.

So in apparel, we actually sell just the base inlay. It's a minority of our sales to -- through the Smartrac channel and the LGM channel through -- without managing the information and so forth to some competitors of the apparel solutions division, and the vast majority though of course, is what our apparels business sells through, as we say we're vertically integrated with managing the information.

Food will be the same as an example, where we're providing the full solution set in many areas and I'd say the early adoption aspects will be more solution based and so I would expect it to evolve similar to what we've seen in apparel.


Next question is from John McNulty, BMO Capital Markets. Please go ahead.

John McNulty -- BMO Capital Markets -- Analyst

Yeah, thanks for taking my question. Hopefully you can hear me this time. So I guess two things, one would be on the RBIS front, if I look at 2019 and I look at 2020, it looks like there was a geographic shift with the U.S. kind of gaining about 5 points and Asia actually losing about 5 points, which seems a little surprising just considering how Asia weathered COVID maybe better than some of the other regions. So, I guess what's driving it? Is it just the RFID growth and where that's stemming from or is there something else we should be gleaning from this?

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

It's RFID adoption, that's exactly it. And the RFID adoption is far ahead in the U.S. versus other regions. [Speech Overlap] continued, if you look at peer volumes, Asia, we're actually seeing continued strength and penetration if you were to look at it just from a pure volume standpoint within RBIS.

John McNulty -- BMO Capital Markets -- Analyst

Got it. Okay, no, that's helpful. And then, I guess the other question was just, in terms of the fourth quarter rate on the temporary savings, did you quantify that. I don't recall you saying it on the call, but I guess if not, can you quantify what those savings were?

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Yeah, we didn't quantify the quarter. So I think we said for the full year, we had about $135 million of the temporary savings, a little bit lower than what we had projected for the last couple of quarters just given -- we had said when volumes start to come back, some of those costs would return. So a little bit lower than we had projected before. So the fourth quarter, I think, was in the roughly $15 million range, something like that.


Next question is from Adam Josephson, KeyBanc. Please go ahead.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks so much for taking my follow-up. Mitch, just one on the geographic situation for you, just including any observations thus far in the first quarter. You mentioned that North America was really strong, particularly in LPM in the last, I don't know, eight months of the year or much more so than was Europe even though they both locked down much of that time.

Can you just talk about what you're seeing geographically, if the trends differ much than what you saw in the fourth quarter and what your expectations are, if you can by region, roughly speaking, as part of that 3% to 7% organic sales guidance? Thanks very much.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Yeah, Adam. As far as what we're experiencing, yes North America is definitely having a resurgence in the volume that we're seeing right now and that's -- yeah, it's just what I explained. And I think it's the drivers -- if you look at it, it's due to consumer packaged goods consumption as well as e-commerce. It's hard to tell as I talked about volumes have been a bit lumpy, if you look across the various month by region.

So there could be a little bit of inventory build within the current surge that we're seeing in North America and Europe is definitely -- it came back stronger in Q4, and I'd say all the regions came back, had very solid growth within Q4 and North America particularly strong. But even EMENA, they finished the year strong and now as we look at January which might be some of your questions, we're continuing to see the strength in North America, EMENA is softening a bit, and Asia is just too early to tell because of the Lunar New Year.


And Mr. Butier, there are no further questions at this time. I will now turn the call back over to you for closing remarks.

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

All right. Well thank you, everybody, for joining the call today. I again want to thank our team for their commitment, dedication, and agility and -- to bring a very strong year from a bottom line perspective and delivering for our customers in what was a very challenging market conditions. I do want to just encourage everybody to join us for our Investor Day next month where we'll be sharing more about our long-term objectives and strategies. Thank you very much.


[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

John Eble -- Investor Relations

Mitchell R. Butier -- Chairman, President & Chief Executive Officer

Gregory S. Lovins -- Senior Vice President & Chief Financial Officer

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Neel Kumar -- Morgan Stanley Investments -- Analyst

Josh Spector -- UBS Securities -- Analyst

Anthony Pettinari -- Citigroup Global Markets -- Analyst

Jeffrey Zekauskas -- JP Morgan Securities -- Analyst

George Staphos -- Bank of America Merrill Lynch -- Analyst

Chris Kapsch -- Loop Capital Markets -- Analyst

John McNulty -- BMO Capital Markets -- Analyst

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