Avery Dennison Corporation (AVY) Cash Flow Statement

The ratio exceeded 2.0 in several quarters, such as 2025Q4 and 2026Q2, where operating cash flow materially outpaced net income, which may reflect favorable receivables collection or payables timing rather than structurally higher earnings. The negative conversion in 2025Q1 coincided with a working capital outflow of roughly $286 million, suggesting the cash reality of that quarter was dominated by balance sheet movements. Investors should monitor whether the average conversion over a full cycle approaches 1.0x, as that would support the reported earnings base.

The recent quarter's free cash flow of $244.6 million remains well below the peak of $369.0 million reported in 2026Q2, which may suggest that the second-quarter figure was flattered by working capital release. Capital expenditure has remained contained at roughly 1.2% to 3.3% of revenue, so the volatility appears to originate in operating cash flow rather than investment intensity. Warrants further investigation to determine whether the recent margin decline reflects normalization or a timing reversal.

Large inflows in 2025Q4 and 2024Q4 align with seasonal year-end collections, while the sustained outflows in 2025Q1 and 2024Q2 suggest inventory build or receivables expansion ahead of revenue recognition. The pattern implies that reported net income is a less reliable guide to quarterly cash output than the cumulative trend. Investors should monitor whether these swings reverse consistently across fiscal years, as persistent one-directional drift would raise questions about underlying working capital efficiency.

Dividend payments appear consistently covered by operating cash flow in most quarters, which points to a disciplined and predictable payout structure. Buybacks and acquisitions, including the $388.7 million outflow in 2025Q4, were clearly sized to available cash, indicating that M&A and repurchase decisions are timed around cash generation. Warrants monitoring of whether large acquisition outflows are generating commensurate incremental cash flow in future periods.