On Apr 11, 2014, we issued an updated research report on
Avery Dennison Corporation
), a pressure-sensitive materials producer and provider of a wide
variety of information and brand management solutions.
Avery's adjusted earnings per share improved 44% year over year
to 69 cents in the fourth quarter of 2013. For full-year 2013,
Avery reported adjusted earnings per share of $2.68, a 37%
improvement over $1.96 in 2012. The company expects its full-year
2014 adjusted earnings in the range of $2.90 to $3.20 per share.
Avery remains committed to its long-term targets (to be achieved
by 2015) of sales growth in the range of 3-5% and net income
growth of 10-15%. A 15-20% increase in earnings per share is
expected to be achieved through continued growth in emerging
markets and productivity improvements.
In Jul 2013, Avery divested its underperforming Office and
Consumer Products segment along with its Designed and Engineered
Solutions businesses. Net sale proceeds of approximately $390
million were utilized for share repurchases, supplemental pension
plan contributions and debt reduction by $200 million. This has
in turn reduced the interest burden and will thus boost margins.
With the divestiture of the weaker Office Products business, the
company will be able to focus on organic growth and manufacturing
efficiencies in its market-leading, Pressure-Sensitive materials
business, and Retail Branding and Information Solutions segment.
In addition, the Pressure-Sensitive Materials segment sales will
rise in 2014 due to higher volumes and higher prices. Growth will
be driven by the emerging markets - China, India, South America,
particularly in film labels for consumer products and food &
beverages, followed by a modest increase in North America as well
in the European regions.
The Retail Branding and Information Solutions segment continues
to benefit from increased demand from European retailers &
brands. 20 of the top 30 retailers in the U.S. are now testing or
already using RFID (radio-frequency identification). Several new
installations are taking place in Europe as well. RFID recorded
25% growth during the year and should continue to progress in the
next few years.
Avery's medical products business, Vancive Medical Solutions'
major achievements during the year include the commercialization
of new antimicrobial dressings that are more effective in
preventing wound infection in hospitals and also more cost
effective than existing products. This, and other key
developments with wearable sensors position the business for
double-digit growth and improved returns in 2014.
On the flipside, the Graphics business within Pressure-Sensitive
Materials underperformed particularly in Europe. Sales declined
and the company missed its profit target due to a negative shift
in product mix. The negative product mix also affected results in
the Label and Packaging Materials business. Product mix
challenges will remain until the company's initiative to improve
the same materializes. In addition, inflationary pressure for
certain raw materials will continue to be a headwind.
Avery recently announced its plans to close an old manufacturing
plant in the Netherlands and consolidate operations and invest in
new production capabilities elsewhere to improve the
competitiveness of the European Graphics business. Even though
this restructuring plan will lead to savings in 2015, it will be
a modest headwind to earnings in 2014.
Other Stocks to Consider
Avery currently retains a Zacks Rank #3 (Hold). Some other stocks
worth considering in the sector include
Alamo Group, Inc.
Altra Industrial Motion Corp.
Zebra Technologies Corp.
), all carrying a Zacks Rank #2 (Buy).
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