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Executives

Dean Scarborough - Chairman, President and CEO

Mitch Butier - SVP and CFO

Cindy Guenther - VP, Global Financial Planning and Analysis.

Eric Leeds - Head of IR

Analysts

George Staphos - Bank of America Merrill Lynch

Ghansham Panjabi - Robert W. Baird

John Roberts - Buckingham Research Group

John McNulty - Credit Suisse

Jeff Zekauskas - JPMorgan Securities

Peter Ruschmeier - Barclays Capital

Avery Dennison Corporation (AVY) Q4 2010 Earnings Call February 2, 2011 12:00 PM ET

Operator

Good morning ladies and gentlemen, thank you for standing by and welcome to the Avery Dennison Corporation Earnings Conference Call for the fourth quarter and full year ended January 1, 2011. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions)

This call is being recorded and will be available for replay from 11:00 am Pacific Time, today through midnight Pacific Time February 6th. To access the replay please dial 800-633-8284 or 402-97-9140, for international callers; the conference ID Number is 21496533.

I would now like to turn the conference over to Mr. Eric Leeds, Avery Dennison’s, Head of Investor Relations. Please go ahead, sir.

Eric Leeds

Thank you, welcome everyone. Our discussion today will reference the earnings release that we issued earlier along with the slide presentation titled 'Fourth Quarter and Full Year 2010 Financial Review and Analysis.' Both documents were furnished today with our 8-K and posted at the Investors section of our website at www.investors.averydennison.com. We remind you that these results are preliminary as we've not yet filed our 10-Q.

Our news release references GAAP operating margin, which includes interest expense, restructuring, and other charges included in the other expense line of our P&L. Restructuring charges tend to be fairly disparate in amount, frequency, and timing.

In light of the nature of these items, we'll focus our margin commentary on pre-tax results before their effect and before interest expense. These numbers are reconciled with GAAP in schedules A2 to A5 of the financial statements accompanying today's earnings release.

We also remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to uncertainty.]

The Safe Harbor statement included in the documents that we provided today along with our 2009 Form 10-K and 2010 Forms 10-Q address certain risk factors that could cause actual results to differ from our expectations.

On the call today are Dean Scarborough, Chairman, President and Chief Executive Officer and Mitch Butier, Senior Vice President and CFO.

I will now turn the call over to Dean.

Dean. Scarborough

Thanks Eric, and hello everyone. 2010 was a year of solid improvement. We delivered on all key measures for the full year and we made progress on our longer term goals as well.

We say strong top-line growth in our two largest segment, Pressure-sensitive Materials and Retail Information Services, which more than offset the decline in office and consumer products. Both segments benefited from our strong position in emerging markets and an increased focus on marketing to end customers.

We expanded margins year-over-year. However, margins came under pressure in the second half of the year as raw material inflation outpaced price increases.

While we narrowed the gap in the fourth quarter, we didn’t close it. Our number one priority right now is to close that gap in the face of additional inflation, by raising prices, as well as accelerating material substitution and taking productivity actions.

The highlight of the year was our improved financial strength. We generated $379 million of free cash flow, which we used to reduce debt by nearly $300 million, exceeding our targeted net debt to EBITDA ratio. The radiation team hasn’t proved their outlook.

We also contributed more than required to our action plan $78 million and continued to invest in growth and in infrastructure. Putting ourselves in a position to return more cash to shareholders was a key objective for 2010.and we achieved our goal. As we announced this morning, we increased our quarterly dividend by 25% and we have a new authorization per share repurchases.

During the fourth quarter, we repurchase 3 million shares, offsetting dilution and the board has authorized us to repurchase an additional 5 million shares.

Now, turning to the businesses, pressure sensitive materials had low double digit organic sales growth with strength in all regions. Operating margins was up year-over-year, but down sequentially as inflation continued to pressure margins. As I said, the end of the year was a gap between price and raw material costs that we intend to close not only with price increases but with material substitution and productivity.

During the year, we saw the benefits of our investments in end user marketing to specific segments such as food, beverage, pharma and durables. We built a large pipeline of projects with end users to accelerate the conversion to pressure sensitive from alternative forms of packaged decoration. And as a result, we’re capturing new business.

Our raw materials business announced two significant innovations last year. One is a new system for labeling curved surfaces and the other is a new product platform that uses dramatically thinner liner materials that are lower cost and more sustainable.

And our graphics and reflective products business launched a new line of films for digital printers that are best in class. I am very pleased with the progress retail information services made last year. RIS delivered much stronger sales growth through dramatic improvements in service and quality. Margin improved as we saw the benefit of increased volumes on board this cost.

We are starting to deliver on our value proposition to retailers and brand owners who responded very positively to the products and solutions we launched last year. RIS has further to go but it’s starting to realize its potential for sales growth and margin expansion.

And although small, an important part of the long term RIS success story is RFID. Shipments in the year of RFID inlaying for apparel nearly doubled over last year. And we expect continued strong growth in 2011.

Our office and consumer products here turned out as expected given the continued weakness in white collar employment and the impact of new competition. We executed the solid defense of our labels business. We also invested in innovation and created a pipeline of new products that should be visible at retail in the back half of 2011.

In summary we exceeded our targets for the year. Our employees did a great job executing on our strategy by serving customers well. And I am really pleased to be in a position to deliver increased cash to share holders.

For 2011, our business priorities are as follows. First, close the price inflation gap. We had a long history of recovering inflation related margin loss over the cycle and we expect to follow that pattern again.

We’ll further improve our AFS market position as well as sales and margin. We’ll continue to drive the conversion to Pressure Sensitive materials in key segments with innovative new solutions. And we’ll continue to invest in the turnaround of Office Products and start generating sales out of this new product pipeline.

We expect that capital expense will be higher in 2011 about $175 million but still significantly below our depreciation range and our run rate prior to the recession. Our priorities for capital are disciplined investments for organic growth especially in emerging markets and ramping up the IT infrastructure investment that we deferred during the recession.

Finally, we remained focused on generating strong free cash flow to support the investment and to return more cash to shareholders.

Now I’ll turn it over to Mitch.

Mitch Butier

Thanks, Dean. Starting with slide six and talking through to slide nine. Sales in the fourth quarter were up organically about 9%. As Dean mentioned, Pressure Sensitive Materials and Retail Information Services again delivered solid growth in all regions and more than offset the decline in office products.

Our operating margin increased in the fourth quarter as expected to 5.9%, as the benefit of higher volume was more than offset the impact of the price inflation gap, reduced margin in Office Products and increased investments in growth and infrastructure.

While raw materials came in the fourth quarter pretty much as expected, inflationary pressure did pick up in December and that pressure has carried into this year. We previously said that we anticipated narrowing the price inflation gap early in 2011. The continued rise in raw material cost however, has further delayed the timing of when we expect to close the price inflation gap.

This inflation affects all of our segments. The majority of it though, is in Pressure Sensitive Material and the Other Specialty Converting businesses. I’ll provide more color on that in a moment.

Before getting into the segments I want to point out that the discrete tax planning event that we flagged in October came in at $0.42. This benefit will be realized to lower cash tax payments over the coming years and without this benefit our effective tax rate for the year would have been 23%.

Turning to slide 10, our Pressure Sensitive Material segment again delivered strong organic revenue growth of 11%, driven primarily by volume gains in all of our raw materials business. While PSM’s operating margin in the quarter was up 30 basis points year-over-year, margin versus in the third quarter was down half a point due to the raw material inflation. The inflation that we are currently facing is primarily due to the rising cost of adhesive components, which is being driven by higher commodity prices as well as the prior capacity constraints.

We are managing global vendor network to help mitigate this inflation, seeking substitute materials to reduce cost, driving further productivity and working to offset the rest with price increases.

In fact, we are planning another of price increases for the spring and this is on top of those that we just implemented. We are confident that the margin will expand from this current level in Pressure Sensitive as a combination of pricing and other productivity measures offset rising input costs.

Retail Information Services finished the year with organic sales growth of 11% in the quarter. This business which was hit hard during the recession due to retail inventory de-stocking is making great progress on the top and bottom lines. We are clearly building momentum in the marketplace and with a strong operating leverage in this business expect continued margin expansion as we grow. We demonstrated this over the past year. The operating margin here has expanded four full points in the quarter and nearly six points for the full year.

Looking at Office Products, the decline in sales in the fourth quarter reflected weak end market demand and increased competition in the labels category. As expected Office Product operating margin declined in the quarter due to increased consumer promotions, investments in growth and the lower volume.

We previously discussed the competitive situation here and our strategy is to reverse the trajectory of the business. So, the margins will remain under pressure and actually further erode in the near-term as we feel the full effect of action taken last year to defend our position in the labels category as well as investing in innovation.

Our other specialty converting business again had solid sales growth in Q4. And margins have improved as a result of the benefit of increased volume and productivity gains.

Now, while margins improved, the overall margin for this collection of businesses remained in the red in Q4 due primarily to the price inflation gap.

Moving on to the outlook for 2011; on slide 13, we highlighted the key factors that we think will contribute to our P&L and cash flow in 2011.

Slide 14 has our EPS and free cash flow guidance. We estimate organic revenue growth of approximately 6%, reflecting our large and growing presence in emerging markets and benefits from our investments and growth, as well as some lift in pricing actions.

Based on the estimated sales and other assumptions, including the listed factors, we expect adjusted EPS of $3 to $3.30 and free cash flow of $325 million to $350 million. This guidance assumes a $140 million to $150 million of inflation.

As I said earlier, we are working to mitigate this inflation by leveraging our global vendor network, driving further productivity and planning additional price increases. That said, the uncertainty about the timing of when we close the price inflation gap is one of the key factors driving the range in our EPS guidance. Now, let me highlight some of the other key considerations reflecting our guidance.

As mentioned earlier, we expect the operating margin and the Office and Consumer Products business to further erode in 2011 before rebounding. We anticipate Q1 EPS as a percent of full-year earnings to be on the lower side of historical norms that is closer to 15% of full-year earnings. This is due to tougher comps in Office Products and the timing of the price inflation gap in Pressure-Sensitive, as well as the fact that it is a seasonally lowest quarter for RIS

We expected our ongoing pension expenses will be less than last year reflecting changes made to our U.S. retirement plans and we expect CapEx to be approximately $175 million. This is well below D&A and below pre recession levels. Our disciplined approach to capital management and our Lean Sigma productivity efforts should enable us to continue to invest below D&A for the near future.

Overall, we are confident about our position and prospects and with good reason. We’re expecting another year of solid revenue growth in 2011 driven by momentum in emerging markets and Retail Information Services. We expect to close the price inflation gap in Pressure-Sensitive and see PSM’s margin’s expense, RIS will continue to build momentum in both its top and bottom line.

On a constant tax basis, we expect 8% to 20% earnings growth in 2011 and free cash flow remained strong. Given the strength of our balance sheet, we’ve shifted the focus of free cash flow from debt reduction to returning more cash to shareholders. We’ve reduced net debt to less than two times EBITDA and both rating agencies recently indicated improved sentiment of our financial strength.

It’s great to be back in the position of raising the dividend and buying back stock, great indicators of our confidence in our financial strength and growth prospects. I’ll now turn it over to questions.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of George Staphos, Bank of America. Please go ahead.

George Staphos - Bank of America Merrill Lynch

Thanks, hi guys, good morning.

Dean Scarborough

Hi George.

George Staphos - Bank of America Merrill Lynch

The question I had and I realized this is a difficult to pinpoint this because it all depends on when input costs stop increasing and at what rate they’ve increased over this period.

But when do you think given you have a view the world right now and the price increases that you have contemplated for 2011 that you will actually catch up and then narrow the price cost gap in PSM to zero?

Dean Scarborough

Well, George, you actually said it, it depends on much inflation keeps going, that’s the big wild card. I’d say our goal assuming the inflation that we put into the guidance is to do that by the second quarter.

George Staphos - Bank of America Merrill Lynch

Okay. So run rate in second quarter and in terms of the actual results third quarter?

Dean Scarborough

Is basically -- it’s one of the key factors of the range of our guidance. So if all other things being equal, you could assume -- the higher end of the range assumed, that’s earlier next year, early second quarter and the lower end of the guidance is later than that.

George Staphos - Bank of America Merrill Lynch

Okay. Thanks all, I’ll turn it over.

Operator

The next question comes from Ghansham Panjabi with Robert W. Baird. Please go ahead with your question.

Ghansham Panjabi - Robert W. Baird

Hi, guys good morning.

Dean Scarborough

Good morning.

Ghansham Panjabi - Robert W. Baird

I am just curious on RIS, were your numbers during the quarter in line with your expectations, because it seems like retail apparel sales were very, very stronger in the fourth quarter and it seems like it should translate into your RIS lines more significantly or was that something we should expect for 2Q of 2011? Thanks.

Mitch Butier

Yes. Ghansham, recall that everything that was sold in the fourth quarter was already billed by us in the second quarter, and part of the third quarter. So we tend to be -- before the products are shipped is when we are doing the billing. So, our expectations during the quarter was, it was pretty good apparel season. The inventory to sales ratio, remained at historically low levels. So, I'm pretty optimistic about 2011 for Retail Information Services.

Ghansham Panjabi - Robert W. Baird

So, just to clarify, just given how the strong the quarter was for your customers, has that translated into increased order flow for '011?

Mitch Butier

We wont really see that until -- we had a good fourth quarter. So, some of the spring season orders are already in there, but really the real strength in the business, we’ll start to see that in the March-April-May timeframe. That tends to be a really heavy season for RIS.

Ghansham Panjabi - Robert W. Baird

Got you. Okay, thank you.

Dean Scarborough

Sure.

Operator

Our next question comes from the line of John E. Roberts of Buckingham Research Group. Please go ahead with you question.

John Roberts - Buckingham Research Group

Good morning or afternoon.

Dean Scarborough

Hi, John.

John Roberts - Buckingham Research Group

In the 6% sales growth target, how much is price and how much is volume?

Dean Scarborough

About a third of the overall growth is estimated to be price.

John Roberts - Buckingham Research Group

And then, in the fourth quarter just reported, did you give price for the various segments?

Dean Scarborough

I don’t think we want to comment on the actual pricing that we saw within the various segments for specifically, for a particular quarter a year. But overall what we've been saying is that inflation really, sort of ramping up in Q2 and built in Q3 and Q4 and now we are seeing built in Q1, and our pricing has been about a quarter lag from that.

John Roberts - Buckingham Research Group

Okay. I'll get back in the queue.

Operator

Our next question comes from the line of John P. McNulty, Credit Suisse. Please go ahead with your question.

John McNulty - Credit Suisse

Yeah, hi. Just a couple quick questions. In the Pressure-Sensitive area, you put through some pretty sizeable price increases. Did you see what you would view as an appropriate competitive response in the industry?

Mitch Butier

Yes, I mean, our competitors are raising prices and there certainly incentive to, I think one difference between our input cost and sort of our competitors is that a lot of the intensity last year came on the monomer and adhesive side.

So we tended to see that inflation may be a quarter before our competitors did which, they would get buffered because they buy their refuses on the outside. But it certainly is now showing up in there in their margin. So I can see and we’ll see an increase in center for competitors to increase prices.

John McNulty - Credit Suisse

Okay, great. And then just one quick question on the new share repurchase plan for $5 million shares. Is it something that we should be thinking about in terms of simply covers future dilution or is it something where we should see the share counts start coming down and is there any assumption for that in your EPS guidance? Thanks.

Dean Scarborough

Well, we really don’t comment on the timing of share repurchases but overall our intent is to return more cash to shareholders. Obviously, we’ve done that with the dividend and our intent is to devote more of our free cash flow to buying back shares as well.

Mitch Butier

And the overall assumption, our EPS guidance is relatively flat to share accounts on average, if you think about that an averaging effect throughout the year?

John McNulty - Credit Suisse

Okay, great. Thanks very much.

Operator

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

Jeff Zekauskas - JPMorgan Securities

Hi, good day. Would you borrow to repurchase shares or would you use just the cash which is on your balance sheet?

Mitch Butier

Quarter-by-quarter, it would vary but overall the expectations that we’d be using cash and cash flow for repurchase of shares.

Jeff Zekauskas - JPMorgan Securities

Okay. And so this is an authorization that you expect to complete say over a two to three year-period?

Mitch Butier

We don’t want to comment on the timing of when we’re going to do the share repurchases. But this is not something I had expected to be done in that timeframe overall.

Jeff Zekauskas - JPMorgan Securities

Okay. And then, lastly in other specialty converting, why did you lose money in the quarter and what are the prospects for next year?

Dean Scarborough

Yes, that business is a mix of different businesses, our tapes business is the largest entity in there, and they had bit of a tough year in terms of catching along raw material inflation. But then we have a number of new startup businesses in that sector as well. So RFID business is in there and we’ve got couple of other small converting businesses in there as well. So is pretty small and I do expect it to be better in 2011.

Jeff Zekauskas - JPMorgan Securities

Okay. Thanks very much.

Operator

Our next question comes from the line of Peter Ruschmeier, Barclays Capital. Please go ahead.

Peter Ruschmeier - Barclays Capital

Thank you and good morning. I was hoping you could help us to break down the $175 million of capital, is there much there for IS information spending and then the growth capital. How much of that is emerging markets and can you share how you are thinking about which markets hold the most promise?

Dean Scarborough

Sure. So at a high level is basically three major components to the $175 million of capital. But a third of it for investments in growth, principally in emerging markets, a vast majority of that is for emerging market investments. Another third of it is for productivity related investments and maintenance capital within mature markets and the last third is for IT infrastructure.

So, in emerging market CapEx we’re adding a significant amount of capacity in India for our Pressure Sensitive materials business. We are also adding investments and capacity in Asia for Retail Information Services as well as raw material business; so, China and other places in South Asia.

Peter Ruschmeier - Barclays Capital

And is there anything noteworthy on the IT infrastructure side, in terms of, what you are doing there? Is that kind of an ongoing maintenance type number or is there something specific that you are ramping?

Dean Scarborough

Well, there are couple of things we call that for Retail Information Services. We had announced after the acquisition of Paxar that we needed to invest in IT systems to allow us to integrate a lot of disparate systems. During the recession we said no, we'll wait, and so now is the time to make that investment and now that the business has got really good traction.

Also there is some systems that are getting at the end of life that we need to replace. So, I think we are getting back to “more normalized level” of IT spending.

Peter Ruschmeier - Barclays Capital

And I am sorry. This is just last to clarify on that, is that capital that’s going to get returned or is that really more of a required expenditure?

Mitch Butier

Well, the RIS expenditures have a nice return. So, I am excited about that. Some of the other ones are like replacing things like financial systems don’t necessarily have a return, and it's just maintenance capital.

Peter Ruschmeier - Barclays Capital

Very helpful, thank you very much.

Dean Scarborough

Sure.

Operator

Our next question is a follow-up question from George Staphos, Bank of America. Please go ahead with your question.

George Staphos - Bank of America Merrill Lynch

Yeah, hi. Thanks. I guess my next question is, as you think about your key customers within Pressure-Sensitive Materials and really here I’m thinking about the label converters. How have they progressed in the last 12 months?

What kind of shape are they and to ultimately pass along input cost inflation from you and elsewhere and are you seeing any kinds of interesting developments and innovations in label converting that may be help accelerate growth where will it be more less running round on what the volume trend are within the CPG sector. Thanks.

Mitch Butier

Yeah, it’s a good question, George. I think last year the label converters were getting fatigued by the price increases and I believe it’s because many of them during 2010 were kind of locked into fixed price contracts for the year with a number of their customers across many sectors. And we’ve done, I think, the best job we could in educating that marketplace is to say that’s not really a good idea in this environment.

So my sense in talking to a lot of label converters is that they’re reluctant now to sign up for full year price guarantees, because we can’t give them any kind of protection on raw material inflation. So I think 2011 will be a bit of a different game for most label converters.

From my perspective, the innovation in the marketplace is really being driven by our end-use marketing efforts in terms of coming up with new solutions like the Curvy container product and thinner liner material innovation, which allows us to explore other types of applications that typically are not that pressure-sensitive.

So, we’ve got a number of innovations that we’ll be watching later this year at the Label Expo. So, yes, I think 2010 was a tough year. But I think people now in the industry realize that this inflation is going to be with us for while and I anticipate label converters actually having raw material price through contracts with their customers as best as they can.

George Staphos - Bank of America Merrill Lynch

Okay, thanks Dean, I’ll turn it over.

Operator

Our next question comes from the line of Ghansham Panjabi, Robert W. Baird. Please go ahead with your question.

Ghansham Panjabi - Robert W. Baird

Hi, guys, hi, again. You know Dean, as we look back over the last few years, ’08 was clearly a year market dislocation, ’09 perhaps is best characterized as cost cutting and maybe a modest recovery, ’10 was a year of volume improvement by higher inflation. How would you qualify ‘011 as you see it right now? Is the year of margin catch up?

Dean Scarborough

Yes, again it depends -- here is the way I look at this. So, the last time we went through major inflation and I think there was already a gap for us to catch up, our trust is actually higher than it was before.

So over the cycle I think we’ve been definitely making progress. And what we’re gearing up for this year, is dividing volumes will be good. That’s our sense, especially in emerging markets where we have a good position.

We expect inflation to continue and we’re going to be aggressive about catching up with that. But also we’re going to get aggressive with suppliers on material substitution side. We’ve been working over the last 18 months very hard to bring new supplier to the marketplace, especially in emerging markets and some of that is going bear fruit this year. So, in that respect we are able to take a little more control

Ghansham Panjabi - Robert W. Baird

Okay, thanks. Good luck in the quarter.

Dean Scarborough

Thanks.

Operator

Our next question is a follow up question from John E. Roberts, Buckingham Research Group. Please go ahead with your question.

John Roberts - Buckingham Research Group

Alright, thank you. Given the importance of apparel to the RIS business, is there record high fiber cost that apparel makers facing causing them to time their volumes or do anything with their volumes that might affect the labels that go on apparel?

Dean Scarborough

Not really. I think that, you know, the apparel guys will change for the fibers they use. They will use more polyester cotton blends than just pure cotton because cotton is at a record high. They still have to get product into the stores for the normal season.

So, I don’t anticipate any issues there and so, I don’t sense that. If anything, I think, there is still a tremendous opportunity for us to gain share in this business. Because apparel companies want to enhance their brands, they are looking for more sustainable products with a lot of solutions that we can offer retailers and brand owners that help them improve their gross profit margin. Their position.

John Roberts - Buckingham Research Group

I may have asked this before but are there placements of RIS machines that act as a leading indicator of your business or something like that that you can talk about? That the ticketing machine installations are up year-over-year or something like that?

Dean Scarborough

Yeah, we are already everywhere we need to be. So, there is no really leading indicator there for us. You know, we kind of get a lead indicator on how retailers are feeling about the upcoming season because, they order, obviously, months in advance when the product has to be in the stores.

And again we'll see that -- actually though we had a pretty good fourth quarter. For me, retailers were optimistic about consumers wanting to spend and they spent on parallel. And we’ll see in a few months about how folks feel about the Fall season with the orders coming in and again in the March-April timeframe.

John Roberts - Buckingham Research Group

Great. Thank you.

Operator

Our next question is a follow-up question from Jeff Zekauskas from JPMorgan Securities. Please go ahead with your question.

Jeff Zekauskas - JPMorgan Securities

So my understand, Dean, is that acrylics prices keep moving up in fourth quarter. If acrylics hasn’t moved up in the first quarter, would you have caught up to the raw material cost inflation that you felt in the fourth quarter and the first quarter?

Dean Scarborough

Yeah. Within the first quarter we would catch-up. Towards the middle of the first quarter, we would be expecting the catch-up. We did not have this latest round of inflation which is we would not be planning the current price increase for spring.

Jeff Zekauskas - JPMorgan Securities

Okay and in your commentary on Office Products, did you -- you said that you would still be under a little bit of pressure. Were there any usually good items in the fourth quarter that is, was the volume a little bit better than you expected and for next year it sounds like you’re expecting down operating profit for the year? Is that correct?

Mitch Butier

Yeah. So first on the fourth quarter. We did see more volume coming through and basically that was some customer did some pre-buying to, I think help their yearend. They improved their rebate levels a little bit. We see this varying from year-to-year but it’s a little more than what expected in Q4. Here is my expectation for 2011 for Office Products.

And that is we’ll be investing in demand creation and new product development and that’s where -- and plus we’re going feel the full year impact of the losses that we had in the label category in 2010.

But I expect sales to level up because we’ll start to see product placement for lot of our new product categories and then we’ll really start with back-to-school period and in the fall. So that’s when we really see the benefit of the investments we are making there.

Jeff Zekauskas - JPMorgan Securities

How much business have you lost or how much business did you lose in 2010?

Mitch Butier

You know, it wasn’t that much. In label category, remember this is about $200 million category. I think on a rate basis we lost six or seven share points in total. We actually only lost placement at one retailer and we didn’t lose it in the catalogue. And we still have the high volume skews in that retailer.

So from my perspective the team did really good job of defending our market share position. Of course, it cost us some money, but it was absolutely the right thing to do.

Jeff Zekauskas - JPMorgan Securities

Okay, thank you very much.

Dean Scarborough

Sure.

Operator

And our next question is a follow up question from George Staphos, Bank of America. Please go ahead with your question.

George Staphos - Bank of America Merrill Lynch

Thanks. Hi, guys. Putting all of that commentary together to Jeff’s questions and the fact that, you get the leveling off and the leverage in the second half of the year when you get back to back-to-school season, and earlier when we were talking about Pressure-sensitive Material price pass through and the you’ll, more or less catch up at some point in the second quarter, given what you know the world right now with input costs.

Does it seems logical then that in terms of the quarterly progressions that the first half of the year, the company is running perhaps flat-to-down versus last year, given the comparisons and would you really get the earnings growth in the second half of 2011?

Dean Scarborough

Yes, so overall -- let me just put this in the frame this up around what we expecting in Graphics Products. We are investing in this business and we -- turn reverse. The trajectories have been full from the top-to-bottom line. We are expecting 2011 to further erode, both top and bottom lines.

But the pace of erosion to slow down on the top line and then in the middle of the year, particular with PCs and Back-to-School, we will be able to launce a number of new products and we will be able to start to see the sales coming through from that. It will still be relatively small on how you measure from a financial perspective. In 2011, it is really going to provide a great pace for moving into 2012. So, you think about how things play out throughout the year.

Overall, you should be thinking about Office Products still showing some erosion on the topline but it is slowing down our pace and margins too, as I said earlier, further erode as well full-year and --.

George Staphos - Bank of America Merrill Lynch

Yes, I guess, but my question was -- with more than aggregate Avery Dennison with the sample. In other words, if I say the trends and comparisons in Office and the price cost pass through, battled year, you got underway right now with Pressure Sensitive Materials.

But it sounds like at least from our vantage point first half of 2011 for Avery Dennison, an aggregate earnings were probably more likely to be flat-to-down. Obviously, you have given us guidance for an up year and more than 100% of the growth should come in the second half. Would that be a fair assessment?

Mitch Butier

The gross and…

George Staphos - Bank of America Merrill Lynch

…earnings.

Mitch Butier

On a company-wide level, yes, you would expect more of that to be back half. Remember also when you think about that the RIS in their second quarter, seasonally the high-end.

So, the significant amount of earnings usually about a third of a full-year earnings come in the second quarter, all other things being equal because of RIS’ seasonality. But aside from that point you're right, second half is when you would expect more of the profit to come through.

George Staphos - Bank of America Merrill Lynch

Okay. Fair point on that as well. Mitch, thanks very much. Good luck in the year.

Mitch Butier

Thank you. Thanks.

Operator

And our last question comes from the line of John E. Roberts, Buckingham Research Group. Please go ahead with your question.

John Roberts - Buckingham Research Group

The 100% growth that you had in RFID Q4 over Q4, was that broad-based and/or did it include a major ramp by any U.S. retailer?

Dean Scarborough

It’s certainly a big part of the growth was in apparel RFID tags. So, we also had growth in other segments where we sell RFID inlays. So from that perspective it was pretty broad-based. And we did have a couple of customers in the U.S. ramp up their RFID programs.

John Roberts - Buckingham Research Group

Okay. Thank you.

Operator

There are no further questions at this time. I would now like to turn the call back over to Dean Scarborough.

Dean Scarborough

Well, thanks for joining the call today and to sum up, we have solid 2010 and we feel good about 2011. As I noted earlier, our priorities for the year are to close the price inflation gap and expand margins, drive sales growth with our investments in marketing and innovation and continue to generate strong free cash flow, enabling us to return more cash to shareholders.

Thanks everyone for joining and we look forward to speaking with you again.

Operator

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.

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