Avery Dennison Corporation
) is divesting its underperforming Office and Consumer Products to
), the maker of Post-it notes and Scotch Tape, for $550 million in
The Office and Consumer Products segment contributed
approximately 13% to Avery's total revenue in fiscal 2010 and in
the most recently reported third quarter of 2011. The segment
manufactures and sells a wide range of office and printable media
products under the Avery brand name for office, school and home
The segment also offers an array of stationery products,
including writing instruments, markers, adhesives and specialty
products under popular brand names such as Avery, Marks-A-Lot and
This is a long-struggling segment of Avery with weak end market
demand, facing cutthroat competition in the label category. Margins
have been affected due to increased investment in demand creation,
consumer promotions, and innovation, as well as lower volumes.
Demand for office supplies has suffered in recent years as
businesses and governments slashed spending on administrative
operations because of lower revenue. Moreover, profit margins on
office products have come under pressure as retailers such as
Office Depot, Inc.
) have expanded the product lines of their own-store brands.
Avery estimates the segment to generate sales of
approximately $765 million in 2011, a 6% drop from 2010 sales
of $816 million. Adjusted operating income and earnings before
interest, taxes, depreciation and amortization (EBITDA) is
projected at approximately $80 million and $95
million, respectively. Avery Dennison Corporation expects total
sales in 2011 to be approximately $6 billion sans Office
Avery Dennison had earlier reduced its fiscal 2011 EPS guidance
to between $2.15 and $2.30 following apprehensions of continued
weakness in volumes.
The transaction is expected to be completed in the second half
of 2012. Avery Dennison intends to use the proceeds from the
transaction primarily to reduce debt, make additional pension
contributions and repurchase shares.
As of October 1, 2011, Avery's cash and cash equivalent plunged
to $119.7 million from $157.8 million at October 2, 2010. Long-term
debt also decreased to $954.5 million as of October 1, 2011 from
$1.07 billion as of October 2, 2010.
Avery Dennison reported a disappointing third quarter with its
adjusted EPS plunging 23% year over year to 48 cents. However,
revenues of $1.7 billion rose 4% year over year on revenue growth
in two segments - Pressure-sensitive Materials and Other specialty
converting businesses. Specifically, revenues of the Office and
Consumer Products segment fell 4.4% to $219.7 million.
Avery's largest business is the manufacturing of
pressure-sensitive materials, which include labels for foods,
beverages and auto interiors. Its retail branding and information
solutions arm produces garment tags and other services.
The company experienced unexpected declines in volumes in both
the segments across all geographical regions in the second quarter
that continued into the third. Now with the weaker Office Products
business sold out, the company will be able to focus on its
market-leading, pressure-sensitive materials business, and Retail
Branding and Information Solutions segment.
We have recently downgraded our recommendation on Avery from
Neutral to Underperform reflecting lower volume expectations for
the fourth quarter of 2011, a higher tax rate and weak results in
two of its largest businesses. The shares of Avery Dennison are
currently maintaining a Zacks #5 Rank (Strong Sell rating) over the
short term that corresponds with our Underperform
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.
Fortune Brands Inc.
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