Avery Dennison Corporation ( AVY )
reported adjusted earnings per share (EPS) of 56 cents in the
second quarter of fiscal 2012, a 7% decline from the 60 cents
delivered in the year-ago quarter and falling short of the Zacks
Consensus Estimate of 54 cents.
Including restructuring costs and other items, EPS from
continuing operations was 49 cents in the quarter compared with 50
cents in the year ago quarter.
Total revenues dipped 0.8% to $1.53 billion from $1.54 billion in
the prior-year quarter. Revenues were in line with the Zacks
Cost of sales for the reported quarter improved 1.4% to $1.13
billion. Gross profit increased 1% to $399.8 million from $396.4
million in the prior-year quarter.
Marketing, general & administrative expenses were $292.7
million versus $283.3 million in the year-ago quarter. Adjusted
operating income from continuing operations decreased to $107.1
million from $113.1 million in the year-earlier quarter. Operating
margin contracted 30 basis points to 7% in the quarter.
Total revenues in the Pressure-sensitive Materials segment
remained flat at $1 billion. Increase in Label and Packaging
Material sales was offset by a decline Graphics and Reflective
Solutions. Adjusted operating profit inched up 1% to $91.4 million
in the quarter with operating margin expanding 10 basis points as
benefits from higher volume offset higher employee-related
expenses, including incentive compensation.
Total revenues from Retail Branding and Information Solutions
declined 2% to $388.6 million from $396.5 million in the
year-earlier quarter due to low demand from retailers and brands in
the U.S. and Europe. Segmental adjusted operating income also
decreased to $20.7 million with adjusted operating margin
contracting 160 basis points to 5.3% due to wage inflation,
partially offset by productivity initiatives.
Other specialty converting businesses segment reported net sales
of $134.5 million, down 5% from $142.1 million in the year-ago
quarter. Adjusted operating profit however improved to $4.8 million
from $4 million in the prior-year quarter. Operating margin
expanded 80 basis points to 3.6% in the quarter as higher volume
and productivity initiatives more than offset higher
employee-related expenses and restructuring costs.
As of June 30, 2012, cash and cash equivalents of the company were
$161.4 million versus $190.7 million as of March 31, 2012.
Long-term debt remained flat at $703 million as of June 30, 2012
from March 31, 2012.
Cash flow from operating activities was $41 million in the first
half of fiscal 2012 compared with $95.2 million of cash used in
operating activities in the first half of fiscal 2011. Avery
repurchased 2.4 million shares during the quarter at an aggregate
cost of $70 million.
Avery has initiated its second phase of restructuring initiative
that is expected to be completed by mid-2013 and reduce costs
across all of its segments. More than $100 million in annualized
savings is estimated from this program. However, the company
anticipates that it will incur restructuring costs of approximately
$55 million 2012 and around $25 million in 2013.
AVERY DENNISON (AVY): Free Stock Analysis
BEMIS (BMS): Free Stock Analysis Report
3M CO (MMM): Free Stock Analysis Report
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The company has narrowed its adjusted EPS guidance to a range of
$1.90 to $2.05 from the earlier guidance range of $1.80 and $2.15.
Free cash flow from continuing operations is expected to lie
between $280 million and $310 million in 2012.
Avery generates one third of its revenue from Europe and given the
weak demand in the region, we maintain a cautious stance.
Furthermore, rising raw materials prices, negative currency
translation and slower growth following the sale of the Office and
Consumer Products business remain headwinds.
The company has aggressively cut costs in the past three years, to
the tune of nearly $160 million in expected annual savings.
Additional restructuring will help reduce costs. Further share
repurchases and dividend hikes could fundamentally improve investor
Pasadena, California-based Avery Dennison produces
pressure-sensitive materials, office products and a variety of
tickets, tags, labels and other converted products. Avery is a
Fortune 500 company operating over 200 manufacturing and
distribution facilities with roughly 32,000 employees in more than
60 countries. It competes primarily with Bemis Company
Inc. ( BMS ) and 3M Co. ( MMM
We maintain our Underperform recommendation on Avery Dennison. The
shares of Avery Dennison are currently maintaining a Zacks #4 Rank
(Sell) over the short term that corresponds with our