艾利丹尼森 (AVY) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Avery Dennison's Earnings Conference Call for the Fourth Quarter and Full Year ended December 30, 2017. (Operator Instructions)

This call is being recorded and will be available for replay from 11:00 a.m. Pacific time today through midnight Pacific time February 3. To access the replay, please dial (800) 633-8284 or 1 (402) 977-9140 for international callers. The conference ID number is 21857410.

I would now like to turn the conference over to Cynthia Guenther, Avery Dennison's Vice President of Investor Relations and Finance. Please go ahead, Madam.

Thank you, Dmitra. Today, we'll discuss our preliminary unaudited fourth quarter and full year results. Please note that throughout today's discussions, 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 A-4 to A-8 of the financial statements accompanying today's earnings release and in the appendix of our supplemental presentation material.

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, 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, Cindy, and good day, everyone. I'm pleased to report another year of excellent progress towards our long-term strategic and financial goals.

Sales grew 8% on a constant-currency basis. Adjusted operating margin expanded by 50 basis points, and adjusted EPS grew 24%. Our Label and Graphic Materials business continues to reach new heights. Retail Branding and Information Solutions posted both strong top line growth and significant margin expansion, and we made progress in expanding the platform for Industrial and Healthcare Materials.

This past year marked the company's sixth consecutive year of strong top line growth, margin expansion and double-digit adjusted EPS growth. This consistent performance reflects the resilience of our industry-leading market position, the strategic foundations we've laid and our agile and talented workforce.

Our strategic playbook continues to work for us as we focus on 4 overarching priorities: driving outside growth in high-value product categories, growing profitably in our base businesses, relentlessly pursuing productivity improvement and remaining disciplined in our approach to capital management.

Our strong top line growth in 2017 reflected a balance of contributions from acquisitions and organic growth, driven by our large presence in emerging markets as well as in our faster-growing high-value categories such as specialty labels, industrial tapes and, of course, RFID.

Emerging-market and high-value categories are the 2 key catalysts for growth across our entire portfolio. Roughly half of our total sales are now linked to one or both of these catalysts, and we continue to target above-average growth from them over the longer term.

In addition to the successful execution of our strategy to expand in high-value categories, we also delivered solid growth in our base businesses by carefully balancing the dynamics of price, volume and mix, by reducing complexity and by tailoring our go-to market strategies.

Now equally important to top line results, we also maintained our strong focus on continuous productivity improvement. Product reengineering, lean operating principles and the effective execution of our multi-year restructuring plans remain key to our success, not just as a means to expand margins but to enhance our competitiveness particularly in our base businesses and provide a funding source for reinvestment. Now I'll just touch briefly on how each of these strategies are playing out in the segments.

Label and Graphic Materials, our highest return business, delivered another year of strong top line growth and continued margin expansion, reflecting continued above-average growth from our exposure to emerging markets, our strategic focus on high-value categories and an ongoing contribution from productivity initiatives.

Our strategy to expand our position in high-value categories, which includes specialty labels, as I mentioned earlier, as well as Graphics and Reflective Solutions is working. We delivered strong organic growth for these products in 2017 and further increased our exposure to them with the acquisition of Hanita Coatings.

Now on the productivity front, LGM consistently delivers. Our focus on material reengineering and continuous improvement through lean enabled us to profitably grow our base business while maintaining and expanding our strong returns. Retail branding Information Solutions delivered both strong top line growth and significant margin expansion driven by the execution of our transformation strategy and continued strength in RFID. In terms of the base business, sales increased across most product lines and multiple customer categories, including performance athletic, premium and fast fashion.

Our ability to grow this business in the face of challenging retail environment underscores the success of our multiyear transformation strategy as our improvement in service, flexibility and speed continue to resonate with customers.

RFID grew nearly 20% in 2017. We expect this business will represent close to $300 million in sales this year as we continue to see increasing engagement with apparel detailers and brands across all stages of the pipeline as well as promising early-stage developments in other end markets.

RBIS's operating margin expanded 150 basis points in 2017, and we expect to be within our 2021 target range for the segment already this year. The team has done a tremendous job transforming RBIS into a simpler, faster and more competitive business over the past 2 years, and we're pleased with the momentum we're seeing here.

Turning to Industrial and Healthcare Materials. We expanded our platform here with sales up 30% on a constant-currency basis driven by both acquisitions and a return to solid organic growth in the back half of the year. Now while I'm pleased with our progress in the top line, operating margin is not where we want it to be due in part to the impact of acquisitions and growth-related investments but also from a number of operational challenges as I've discussed over the past couple of quarters. We still have work ahead of us to embed strong lean operating principles and practices into this business to duplicate the operational excellence that epitomizes LGM. We expect to get traction on our productivity initiatives by the middle of this year, and I remain confident that this business will achieve our long-term growth and margin targets.

And as many of you know, this segment serves attractive high-value markets where we are currently underpenetrated and where we can leverage our core capabilities. Given this growth potential, we are investing disproportionately to expand our platform here, particularly through M&A. The acquisitions we completed in 2017 in both of our materials segments, Yongle Tape and Finesse Medical and IHM along with Hanita Coatings and LGM are all excellent examples of how we're using bolt-on M&A to accelerate our portfolio shift to higher-value categories.

I'm pleased with our overall progress in executing this strategy. We are on pace to achieve the returns we've targeted from acquisitions we completed over the past 2 years while adding new capabilities that are key to our long-term value creation strategy. Carefully planned and executed M&A is just one key element of our highly disciplined approach to capital allocation. Over the past couple of years we increased our overall pace of investment, including for organic growth, and we are picking up that pace even further in 2018.

On the fixed asset side, 2017 spending was focused on capacity additions in both Europe and Asia. This year, capital spending will continue to be concentrated in Asia while we will also be making a number of investments in the Americas to support our strategy for long-term profitable growth.

In addition to the pickup in CapEx spend, we are also increasing our level of SG&A investment, particularly with respect to RFID, as we continue to build our intelligent labels platform. This increased pace of investment is commensurate with our consistent GDP plus organic growth and ability to maintain top quartile returns on capital while preserving ample capacity to continue delivering cash to shareholders through dividends and share repurchases.

Overall, I'm pleased with our progress over the last few years and, again, in 2017 and expect to maintain this momentum in 2018 with another year of strong top line and double-digit EPS growth. Now I'll turn the call over to Greg.

Thanks, Mitch, and hello, everybody. I'll provide some additional color on full year results, and then I will walk you through our fourth quarter performance and our outlook for 2018.

As Mitch said, 2017 represented another year of great progress towards our long-term financial targets.

On Slide 7 of the supplemental presentation materials, we included our progress against our scorecard for the 5-year goals ending in 2018. As you can see here, we are on track to meet or exceed these goals. We've delivered cumulative growth and adjusted EPS of 17% and significantly expanded return on capital, adjusting for the impact of U.S. tax reform in Q4. We believe our return to remain in the top quartile relative to our peers, a position we expect to maintain while increasing our pace of investment for both organic growth and M&A. And we continue to have ample capacity for these investments while returning cash to shareholders in a disciplined manner. Our balance sheet remains strong with our net debt-to-EBITDA ratio on the low side of our targeted range at year-end.

In last March, we introduced a new set of long-term targets, which carries through 2021. Now though we're only 1 year into this cycle, 2017 performance was on pace to deliver the new targets. Given the diversity of our end markets, our strong competitive advantages and our resilience as an organization to adjust course, we're confident in our ability to deliver through a wide range of business cycles.

So let me now turn to more recent performance, our results for Q4. I'll first address the transition to the new U.S. tax code, which had a negative impact on reported earnings in the fourth quarter while improving our outlook going forward.

We recorded a tax charge in Q4 of approximately $172 million or $1.91 per share, resulting in an effective tax rate for the quarter of 138% and 52% for the full year. This charge includes a tax on deemed repatriation of accumulated untaxed foreign earnings as well as the revaluation of deferred tax assets and liabilities. And this amount reflects our provisional estimate of the impact of the new legislation. We may need to update this estimate over the coming months as new information becomes available, including interpretations of the legislation by various regulatory bodies.

Our adjusted tax rate was 28%, which represents our estimate of where we would have ended the year in the absence of tax reform. This is consistent with the guidance we provided in October and down from an approximately 32% for the same period last year.

Looking forward, we anticipate that our 2018 tax rate will be in the mid-20s, and we expect that rate to be sustainable.

So focusing now on the underlying operating results for the quarter, our adjusted earnings per share was $1.33, up 34% compared to the prior year, which was above our expectations due to strong sales growth and margin expansion. We grew sales by 9.1%, excluding currency, with 4.7% organic growth and 4.4% from acquisitions.

Currency translation then added 2.8% to reported sales growth in the fourth quarter with an approximately $0.04 benefit to EPS compared to the same period last year. And our adjusted operating margin increased by 90 basis points to 10.3% as the benefit from higher volume and productivity more than offset higher employee-related costs and the net impact of pricing and raw material costs. And productivity gains this quarter included approximately $16 million of net restructuring savings, most of which benefited the RBIS segment.

And free cash flow was $166 million in the quarter and $422 million for the full year, up roughly $35 million compared to prior year driven largely by our higher operating income.

And in the quarter, we repurchased approximately 200,000 shares at an aggregate cost of $25 million. For the full year, we repurchased 1.5 million shares at a cost of $130 million and we paid $156 million in dividends. And net of dilution, our share count at year-end declined modestly compared to 2016.

So turning to the segment results for the quarter. Label and Graphic Material sales were up 6%, excluding currency, reflecting 1 point of benefit from the acquisition of Hanita. Organic sales growth of 5% reflected continued strong growth of our high-value product lines driven by specialty labels and graphics.

Our Q4 growth also benefited by about 0.5 point from some pre-buying by customers in advance of price increases announced for January. And breaking down LGM's organic growth by region, North America and Western Europe were both up mid-single digits, and our growth in emerging markets was also up mid-single-digits with continued strong growth in South Asia and mid-single-digit growth in China, which was partially offset by soft results in Eastern Europe. It's important to note that while we saw some timing-related quarterly volatility in China during 2017, our full year growth in this important market was in the high single-digits.

Our operating margin for the segment was strong, up 70 basis points on an adjusted basis to 12.2% as the benefit from increased volume and productivity more than offset higher employee-related costs and a negative net impact from pricing and raw material costs.

The sequential impact of raw material inflation was in line with our expectations for the quarter. And while increases today have been gradual and relatively modest, we are expecting some further sequential inflation in the first quarter. We continue to address this through a combination of both product reengineering and pricing. And we have announced price increases in all regions over the past few months, and we'll take further actions as necessary.

So shifting now to Retail Branding and Information Solutions. The RBIS team delivered another excellent quarter as the team continues to execute extremely well on its business model transformation, enabling market share gains while driving significant margin expansion. Regional empowerment has moved decision-making closer to the market and improved local accountability, helping turn speed and flexibility into competitive advantages. And we continue to build a more efficient cost structure.

RBIS sales were up 5% organically driven by strength in both RFID and the base business as well as a continued lift related to the 2018 World Cup. For the full year, we do estimate that the World Cup related sales contributed roughly 80 basis points to organic growth in RBIS. Our volume growth has outpaced apparel unit imports into the U.S. and Europe for a number of quarters now, giving us confidence that we are gaining share, with the performance athletics, premium and fast fashion segments leading the way.

Sales of RFID products grew at a mid-teens rate for the quarter, and we are targeting 15% to 20%-plus compound annual growth for RFID over the long term, although we do, of course, expect some volatility in the growth rate in any given quarter or year based on timing of customer implementations.

And adjusted operating margin for the segment expanded by nearly 2 full points to 11.9% driven by the benefits of productivity and higher volume as well as the reduction in intangibles amortization. These benefits were partly offset by higher employee-related costs and the net impact of pricing and raw material cost.

And finally, turning to the Industrial and Healthcare Materials segment. With the benefit of Yongle and Finesse Medical acquisitions, sales rose 57% ex currency while organic growth rose 6%, reflecting strength in both industrial tapes and Vancive medical products.

Adjusted operating margin declined by roughly 2 points due to the impact of acquisitions and other investment spending as well as the near-term operational challenges that Mitch discussed. Over the coming years, we expect to see operating margin gradually expand to LGM's level or better, achieving our long-term targets for this business by 2021.

So turning now to our outlook for 2018. Our anticipated adjusted earnings per share -- we anticipate adjusted earnings per share to be in the range of $5.70 to $5.95. We've outlined some of the key contributing factors to this guidance on Slide 14 of our supplemental presentation materials. And we estimate that organic sales growth will be approximately 4% for the year, in line with the range we've experienced over the last few years. And we expect the impact of acquisitions on sales to be approximately 1.5% from closed deals.

At recent exchange rates, currency translation represents a roughly 2.5 point addition to reported sales growth and a pretax operating income tailwind of roughly $20 million. And we estimate the incremental pretax savings from restructuring actions will contribute between $30 million and $35 million in 2018, much of which represents a carryover benefit of actions initiated in 2017. And as I mentioned, we expect a tax rate in the mid-20s, and we've assumed 25% for purposes of our EPS guidance. And we anticipate spending roughly $250 million on fixed capital and IT projects. And note that while we've been increasing our pace of investment, our outlook for 2018 is consistent with the cumulative 5-year spending target under our long-term capital allocation plan, which we communicated last March.

And finally, we estimate average shares outstanding, assuming dilution, of 89 million to 90 million shares.

So in summary, we are pleased with the strategic and financial progress we made against our long-term goals this year. And we are committed to delivering exceptional value through our strategies for long-term profitable growth and disciplined capital allocation.

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

(Operator Instructions) Our first question comes from the line of Ghansham Panjabi with Robert W. Baird.

This is actually Matt Krueger sitting in for Ghansham. So looking back at 2017, how much inflation did you see across the raw material basket in your businesses? And then what are you baking into your expectations for 2018 as far as raw material inflation goes?

Yes. Overall, in 2017, as we mentioned, I think, last quarter, we had relatively modest inflation, in particular in the back half of the year. And in Q4, it came in pretty much in line with what we had expected it to be. We are seeing some sequential further lift in inflation in Q1. I think overall, our expectation for the full year in 2018 versus 2017 is probably low single-digits in terms of the rate of inflation versus last year.

Okay, that's helpful. And then taking a step back, looking at your business, you've averaged 4% organic growth since 2013 in what looks like a relatively-tepid macroeconomic environment. Are there any factors that you would -- that would keep you from accelerating organic growth above this level moving forward, especially as pricing contributes more and the global macro seems quite a bit more favorable?

Yes, Matt. Our guidance of 4% basically just reflects exactly what you said, the organic growth we've had in the last number of years and there'd been puts and takes over those years as well. So we thought that was the right number to go with from a guidance perspective. As you look into '18, clearly, with price increase coming through, if the macro were to improve, then that would be tailwinds to that number. I think there's questions about how many macro tailwinds there really are and how long they'll last. But then second, you've got to think about headwinds that we have as well. Greg talked about the World Cup growth that we had in 2017 on RBIS that won't continue as well as the pre-buy from the price increases that we announced that we received a benefit from in Q4 as well. So a few things going both ways.

Our next question comes from the line of Scott Gaffner with Barclays Capital.

Just a follow-up on the raw material inflation. If I remember correctly, I think it was last quarter -- or maybe it was for the full year -- you had about a 25 basis point drag on gross margins from inflationary pressures. Is that -- did that continue over into the fourth quarter? And how should we think about the underlying inflationary pressure from maybe a gross margin perspective in 2018?

Yes, Scott. So I don't think we quoted a number last quarter on what we had expected in '17. I think as we said, it was relatively modest net impact last year between price and inflation. As I said, we are seeing some sequential inflation as we enter 2018. And as you know, our approach is twofold to deal with that. One, we look at product reengineering to see if we can take material cost out of our projects -- products. And we also then look at pricing. So across [20] year, at the very end of 2017, we announced price increases or have implemented them in Q4 or early Q1 in all regions across the LGM business. So we're continuing to deal with that and we feel relatively comfortable with our ability right now to manage the inflationary pressures between those 2 levers that we have. So we do see some net modest impact probably in the first part of the year, but we expect that -- to be able to manage that. Now if inflation comes in stronger, continuous sequential increase as we move through the year. I think as you know, as we've said in the past, it takes us a quarter or maybe 2 quarters to deal with that as it goes. But right now, based on what we're seeing right now with the price increases we've announced and new material costs, reengineering, we feel relatively comfortable being able to manage through that.

Okay. And on the transportation side, obviously, there's been a lot of concern about rising transportation costs, both rail and truck related. I would assume some of your rolls go on trucks and some on rail. But can you sort of give us a breakdown, the exposure there and what you're most concerned about and if you have the ability to pass through the transportation costs?

Yes. So we do obviously have some materials that move on trucks and rail, and we do see some increases there over the last couple years, I think, in North America, some of the factors that you mentioned. And some of our pricing actions do take into account either increases and those kind of macro issues on the transportation perspective as well as fuel. Sometimes, we deal with that through surcharges as well. But right now, we factor that into how we think about pricing actions across each of the regions.

Our next question comes from the line of Anthony Pettinari with Citigroup Global Markets.

Mitch, you talked about investments in the Americas to support growth and I wasn't sure if you were referencing LGM or RBIS or both. Are there any details you can give in terms of product categories or geographies that you're focusing on in terms of the investments?

Yes. The investment focus overall is -- what I was commenting with LGM and RBIS, RBIS specifically around RFID and the rest of it, LGM. And there are -- we're looking at some expansions for growth in the Americas, particularly in the U.S. and Mexico are some expansions that we're planning right now. We have not invested in the North America region for quite some time, well over a decade. And similar to the discussion we had around Luxembourg, when we were expanding there. We'd gone through a period of little investment there as well. When you consider the amount of the market and our own growth, it's time to ramp that up again.

Okay, that's very helpful. And then you also referenced some early-stage development in non-apparel RFID. I don't know if you can give any details there. And then just kind of related question. There's been a lot of attention paid to Amazon Go store that I don't think is using RFID. Any thoughts on competition potentially down the road to RFID from cameras and just general thoughts there?

Sure. So broadly speaking, about the areas outside of apparel, we're seeing a number of small opportunities that are bubbling up, but there are 3 end markets specifically that we're focusing on accelerating the development of and that's aviation, food, and beauty. There has been quite a bit of -- we've got a few pilots going on with a couple of end customers in those spaces. And we've actually seen relatively small pickup in some of our growth, a lot of that around pilot stage, but we see a tremendous amount of opportunity in the space. And if you think about food, a lot of similarities to apparel in some ways. So one is just a desire to increase and improve the supply chain and reduce the manual labor involved with managing that supply chain. And then a focus on freshness. In apparel, you have seasons that create a certain level of perishability. Well, fresh foods definitely have an even higher degree of that. And what we see customers trying to do is reduce their cost by reducing waste but also as part of their sustainability drive, to reduce the amount of wasted food in the network. So those are 3 areas where we're seeing progress. As far as your question about Amazon Go, not going to comment on any specific company that we work with but yet that Amazon Go specifically, with my understanding, does not use RFID. We've been consistent in saying that we actually see the Internet of Things and the connection between the physical and virtual world is going to be a huge driver for a number of technologies. And with the proliferation of cameras and AI and sensors, we think that all these technologies are going to complement each other. And what RFID really provides is in areas where you have tremendous amount of SKU complexity, perishability and lack of line of sight. RFID really plays in that category. So we think there's going to be a complement of technology that supports this whole drive towards IoT more broadly. We're also seeing unmanned stores, convenience stores and the like in Asia that are definitely using RFID. So different end companies are attempting different technologies as they look to roll out a more automated customer interface for food and convenience stores.

Our next question comes from the line of George Staphos with Bank of America Merrill Lynch.

I guess first question I had, to the extent that you can comment, the investments that you're seeing in LGM in the U.S. and Mexico, is there a way to put a revenue potential to the level investment or quantify the level investment, that we're talking about 1 new code or 2 new codes or something totally different?

Yes, we haven't announced the complete extent of the investments that we're making in Mexico. We did announce that we're putting a small coder in that location to serve the Mexican as well as the export market in the Central America, to support the growth that we're seeing in those regions. And again, in the U.S., to support the growth in U.S. and Canada where we've been seeing a good amount of growth. We have not articulated the exact amount of dollar investment overall, George.

Okay. But we're talking about 2 coders here then, correct?

Yes.

Okay. Now second question. Can you talk -- and maybe you mentioned and I missed, and if I did, I apologize in advance. Can you talk about the productivity issue that you're seeing in IHM? And what makes you comfortable that you can apply the traditional Avery lean approach to what is clearly in some ways similar to LGM in terms of the product but in many ways is more complex in terms of SKUs and for that matter, higher-value SKUs, which could, in turn, create issues in terms of productivity and spoilage and the like. So any thoughts there would be helpful.

Sure. So when we just look at the plant and supply chain, there are a lot of similarities with LGM. So that's what gives us the confidence from a starting point. And we are seeing progress in certain regions from instilling this discipline around Lean Sigma for example. We've connected the R&D team from this business with the LGM team, part of one organization. We're cross-pollinating people, pulling people in from LGM, from RBIS where we also have a strong lean culture as well. And that is what gives us the confidence -- both cross-pollinization of leadership as well as taking the process and process technology from elsewhere in the business and instilling it within IHM. That coupled with we are getting early traction in some regions but not the amount of traction that we wanted to be at, at this stage.

Our next question comes from the line of Edlain Rodriguez with UBS Securities.

Just a quick follow-up on IHM. Like those professional issues that you have, like how long do you think it will take you to address that? I mean, is this something that's going to take not more than a year or is that something we should see more progress on sooner?

Yes. So we said that we'd expect to be seeing traction on the middle of the year. I think from a context perspective, when you look at the margins where they are, a big portion of that is M&A as well as growth investments. It's about a point, so $1 million worth is the [oper] in the quarter, is the operational challenge I'm referring to. So I think we'll be on a good trajectory by the middle of this year.

Okay, that makes sense. And in terms of opportunities you see in that segment for bolt-ons and stuff, I mean, is it still as attractive as you earlier expected?

Yes. What we're seeing with both working through our pipeline, we continue to see attractive opportunities that we're evaluating as well as just looking at our own business. I mean, the industrial tapes business, which is one of the key areas of focus, was up almost 10%. The Vancive medical business, where we made a small acquisition this past year, was also up double digits the second half of this year. So both in the performance of our business as well as what we're seeing out there in the pipeline give us that confidence that this is the right place to keep going.

Our next question comes from the line of Jeff Zekauskas with JPMorgan Securities.

You took $172 million tax charge, and I guess there's $29 million in repatriation tax that's included in that. Are you -- how does this change your cash taxes payable? In other words, in, I guess, the first or second quarter, how much cash will come out from this charge? And how does that compare to, say, previous years when you have taxes that you need to pay in the first quarter or first half of the coming year?

Yes. Overall, Jeff, with the tax code, the transition tax to the new tax code, you basically have 7 years or 8 years to pay that. So do not expect a -- anything more than a modest cash tax impact certainly in 2018. Overall, I think, as I said, we're looking at a roughly mid-20s effective tax rate. We think our cash tax rate will be somewhere in the low 20s on a go-forward basis as well.

Okay. And your accounts payable was a little bit more than $1 billion, up from about $850 million last year? Is there something unusual there? Or you're happy having a higher level of payables or what accounts for that lift? And your inventories are up about $100 million year-over-year or 20%. Can you comment on that lift as well?

Yes. So on both of those pieces, a fair amount of that is related to acquisitions. So where we brought on a number of acquisitions this year and, of course, the working capital related to those, as well as currency. So currency has had an impact, particularly in Q4 versus prior year where last year, it was one of the -- Q4 was one of the lower rates in 2016 and one of the higher rates in 2017. So I think those 2 pieces, overall, had a big impact on that dollar increase. I think, overall, from a working capital efficiency perspective, we ended the year fairly well within our expectations, maybe actually a little bit better. Our operational working capital pretty much in line with where we ended the prior year in 2016 from an operating working capital percent perspective. That's despite the fact that, as we've said before, we have some higher working capital ratios in the emerging regions where we're growing a little bit more. So overall, we feel pretty good about the progress we made from a working capital perspective in the year.

Our next question comes from the line of Adam Josephson with KeyBanc Capital Markets.

Mitch or Greg, just one on North America. I think you said it was up mid-single-digits in the quarter. And if memory serves, it's been accelerating throughout the year. Correct me if I'm wrong there. Is that as simple as the economy has gotten fairly better or is there anything more that you would point to? And then what are your expectations for that region in '18?

Yes. So I think, Adam, overall, as we said, we also had some pre-buy in the fourth quarter related to some of the price increases we had announced for January. But even with that, we had grown kind of that low to mid-single-digit range in North America in the quarter. And that's relatively consistent, I think, with what we saw in the third quarter as well. So overall, we've just seen a relatively-good market situation there in the U.S. over the last few quarters but no major changes that I've seen in the fourth quarter from a macro perspective.

Correct me if I'm wrong. In years past, Greg, it was growing quite a bit lower than that, right? Maybe 1%, 2% max?

Yes, it was growing less. And part of that, the market was growing a little bit slower than Europe was something we commented on in the past. But if you recall, Adam, we also had some share challenges a couple years ago, and we basically made some adjustments and had regained that share late last year, early this year and share has been stable since.

But just a couple of others. Uses of capital. Can you just go over what your preferred uses are, be it M&A, buyback, et cetera, at this moment?

Yes, Adam. So our capital allocation approach hasn't really changed from what we've communicated in the past. We typically look to spend about 30% of our available cash reinvesting in the business through CapEx and restructuring. About 20% through dividends and then the other half we have available essentially for both M&A and buyback. So that's the way we look at it and that's how we've communicated in the past and we're remaining relatively consistent with that.

And just one housekeeping one. Tax rate -- excuse me, FX rate assumption for '18, the euro specifically?

Yes, pretty close to 1 20, in the high 1 teens.

Our next question comes from the line of Chris Kapsch with Loop Capital.

I had some questions about the -- just the price increase initiative and the implementation. I think you said that you're acknowledging raw material inflation as we enter '18. And you also said, I think, it takes maybe a quarter or 2 to successfully implement broad-based price increase efforts. And then presumably, we're talking about LGM segment. Just wondering, are you suggesting that margins in that segment will be down for the first quarter? And then, also, what I've seen or heard from contact in the industry is that some competitors came out with sort of high single-digit price increases. Yours is probably, at least announced, more mid-single. Can you just talk about like maybe the delta versus what the industry is pushing for and where you guys really expect to net out?

Yes. So Chris, traditionally, it's taken us a few months, as you say, to pass along price increases once we see the inflationary trends. So that definitely has been the trend, about 4 months and we think it's probably less than that, less of an impact as usual, specifically on Q1. And then as far as the level of price increases, yes, you sound like you've seen some of our letters. We've -- we're not going to comment on where our competition specifically came out, and it's different by geography and perhaps customer set. So I don't want to comment on what their actions are overall, but we're putting in through price increases that are necessary for us to offset the inflation after consideration of our material reengineering efforts, which reduced the raw material cost of our products. And given our strength out of our R&D group and capabilities around innovation here, we would expect our ability to continue to be -- have a greater offset, if you will, then, perhaps, others may.

Okay. And if I could follow up on just the opportunities in RFID focused on, I guess, aviation, food and beauty. When apparel started adopting item level RFID, the case from an apparel company is basically inventory accuracy in preventing stockouts that sort of lift sales, not just help with your inventory, but lift sales and the ROI was pretty compelling. I'm just wondering how parallel are the cases for adoption in these other segments for item level? I guess aviation is sort of unique. I'm assuming you're talking about baggage tags. But in these other areas, if you could just compare and contrast the ROI for -- just from adoption.

Yes, absolutely. So aviation is unique but follows some of the same principles around high degree of SKU complexity and perishability. You've got to get the bag to the customer pretty quickly once they disembark from the plane. And as far as if you look at beauty, a lot of parallels to apparel. If you think about beauty, a lot of it is sold within the department stores, the same place where apparel is and so forth. And so the value proposition is very similar. And with food, it's equal but probably weighted heavier towards reducing waste overall and ensuring freshness. We've all seen some large brands that have been impaired from having safety concerns around fresh food and so forth. So ensuring safety and quality as well as reducing waste, both for cost reasons as well as for sustainability drives.

We have a follow-up question from the line of George Staphos with Bank of America Merrill Lynch.

I'll ask them in sequence and leave you to get on to the rest of your day. First of all, in terms of the 15% growth in RFID, could you give us some additional color perhaps, in terms of how much might that have been new customers, new launches, trials, organic growth with existing customers. Secondly, Greg, I would imagine, or Mitch, that with tax policy change or -- and given where your stock price is that -- and given your history as an EVA company, that would tend to put more focus in the future on investment on M&A and organic growth versus buyback. But if you had any additional color there. And then lastly, on the productivity issues and IHM, where you're not necessarily where you wanted to be, and not to make too big a deal of it relative to the size of the segment [soft in all] of Avery. Since it's mostly about cross-pollination and training, why hadn't that already been done to your satisfaction?

Thank you, George. That's a 3-point question. So RFID. Your question about what's driving the adoption. It's basically continued trends from what we've seen in the past. And there's a few big retailers or brands that have moved 1 or 2 a year and then a number of smaller ones as well. So we're seeing a major retailer moving into full adoption, a number of others moving into pilot. And then in addition to that, many specialty retailers and brands at various stages of the pipeline. So each stage of the pipeline, whether it's from assessment and business case through piloting or partial rollout or full rollout, each stage of the pipeline has increased from where we were a year ago. And that -- and add to that the level of activity we're seeing, which is very early in that pipeline for the areas outside of apparel. From a tax standpoint, just high level, how does it change our thinking being an EVA company? I think the biggest thing around M&A is it makes us more competitive against international companies who don't -- because it's moved to the territorial tax system, that's no longer a drag as we go through our evaluation of M&A targets. Also when you look at financial buyers, there are some changes in there that basically make U.S.-headquartered multinationals I would say more competitive on that standpoint. So we are an EVA company. All that goes into our assessment of how we think about this, and that will be a key drive for us continuing going forward. As far as IHM, the amount of cross-pollinization that occurred before, if you recall, this was a collection of businesses in a number of different areas. And we just did not make the link in the past and we see a significant opportunity for doing so, so we're doing it. I think the key message to take away from this is we've had phenomenal performance over the years, and we keep finding opportunities, whether it's around commercial growth, around M&A, around productivity, to continue to improve ourselves. And this is just the next step in doing so, so that should be the take away there.

Mr. Butier, I will now turn the call back to you for any closing remarks.

All right. Well, thanks, everybody, for joining the call and for your interest in the company. The fourth quarter capped another great year here at Avery Dennison, and we are well positioned going into 2018 to continue some momentum you've seen over the last few years. I really just would like to take the opportunity to thank the entire team for their commitment and focus on continuing to deliver for our investors and our customers and our communities. So thank you, everyone.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.