Avery's Q3 Earnings Beat Estimates - Analyst Blog

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Avery Dennison Corporation ( AVY ) reported adjusted earnings of 69 cents per share in the third quarter of 2013, up 35% from 51 cents per share reported in the year-ago quarter and ahead of the Zacks Consensus Estimate of 65 cents. Results benefited from the growth in revenues in the core segments as well as Avery's restructuring and other productivity actions that were initiated last year.

Including restructuring costs and other items, earnings from continuing operations were 62 cents per share in the quarter compared with 35 cents in the year-ago quarter.

Total revenue increased 4% (organic as well as reported basis) to $1.505 billion from $1.447 billion in the prior-year quarter. However, revenues missed the Zacks Consensus Estimate of $1.509 billion by a whisker.

Cost of sales in the reported quarter rose 3% to $1.1 billion. Gross profit increased 6% to $402 million from $381 million in the prior-year quarter. Gross margin expanded 40 basis points to 26.7%.

Marketing, general & administrative expenses were $286 million versus $287 million in the year-ago quarter. Adjusted operating profit increased 23% to $116 million. Adjusted operating margin improved 120 basis points to 7.7%.

Segmental Performance

Total revenue in the Pressure-sensitive Materials segment increased 4% to $1.09 billion. Label and Packaging Materials sales increased in low-single digits, while sales for Graphics, Reflective, and Performance Tapes increased in mid-single digits. Adjusted operating profit increased 18% to $115 million in the quarter driven by benefit of productivity initiatives and higher volume, which helped mitigate changes in product mix.

Total revenue from Retail Branding and Information Solutions increased 4% to $391 million from $376 million in the year-earlier quarter. The improvement was driven by increased demand from European retailers and brands. The segment's adjusted operating income rose 25% to $23 million on productivity initiatives and higher volumes, partially offset by employee related expenses.

Other specialty converting businesses segment reported net sales of $19.5 million, up 3% from $18.9 million in the year-ago quarter. The segment reported an operating loss of $0.6 million, narrower than the year ago quarter's loss of $2.9 million.

Financial Position

As of Sep 28, 2013, Avery Dennison had cash and cash equivalents of $310 million, up from $191 million as of Sep 29, 2012. Long-term debt was $951 million as of Sep 28, 2013, compared with $703 million as of Sep 29, 2012. Debt to capitalization ration improved to 40.6% as of Sep 28, 2013 from 46.5% as of Sep 29, 2012.

Cash flow from operating activities was $95.7 million during the first nine months of 2013 compared with $214 million in the prior-year comparable period. Free cash flow during the first nine months of 2013 was $105 million, up from $102 million in the prior-year comparable period. Avery repurchased 5.2 million shares for $224 million so far in 2013.

Cost Reduction Actions

The company had initiated a restructuring program in the first half of 2012 to trim costs across all its segments; owing to which the company incurred restructuring costs of approximately $56 million in 2012 and net cost of $20 million in the first three quarters of 2013. Avery has achieved annualized savings of $110 million from this program. The company expects gains from the program to exceed costs in the fourth quarter.

Fiscal 2013 Outlook

The company raised its adjusted earnings forecast to the range of $2.60 to $2.70 per share from the previous range of $2.40 to $2.60 per share. The revised guidance represents annual growth of 33% to 38%. Free cash flow from continuing operations is expected between $275 million and $315 million in 2013.

Sale of Businesses

On Jul 1, 2013, Avery completed the sale of its Office and Consumer Products and Designed and Engineered Solutions businesses to CCL Industries Inc., a global leader in specialty packaging solutions. The net proceeds of approximately $400 million will be utilized to repurchase shares.

Our Take

With the divestiture of the underperforming Office and Consumer Products unit, Avery Dennison will be able to focus on its core segments and increase its growth profile. Further share repurchases will also provide a boost to Avery's earnings. However, the uncertain macroeconomic environment remains a headwind.

Pasadena, Calif.-based Avery Dennison manufactures pressure-sensitive materials and tickets, tags, labels and other converted products. Avery has over 200 manufacturing and distribution facilities in more than 60 countries.

Avery currently holds a Zacks Rank #3 (Hold).

Peer Performance

An Avery Dennison peer, United Stationers Inc. ( USTR ) reported an 11% year-on-year improvement in its third quarter earnings of $1.01 a share, which however fell a penny short of the Zacks Consensus Estimate. Among other peers, ACCO Brands Corp. ( ACCO ) is expected to announce its results on Oct 30 followed by CompX International Inc. ( CIX ) on Nov 4.



ACCO BRANDS CP (ACCO): Free Stock Analysis Report

AVERY DENNISON (AVY): Free Stock Analysis Report

COMPX INTL INC (CIX): Free Stock Analysis Report

UTD STATIONERS (USTR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ACCO , AVY , CIX , USTR

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