On Jun 13, 2014, we issued an updated research report on
Avery Dennison Corporation
), producer of pressure-sensitive materials, and a variety of
tickets, tags, labels and other converted products.
Avery Dennison reported adjusted earnings of 65 cents per share in
the first quarter of 2014, up 10% from 59 cents earned in the
year-ago quarter. Net sales grew approximately 3% on reported and
organic basis in the quarter to $1.55 billion, increasing for the
8th consecutive quarter. Organic growth was realized in both the
Pressure-Sensitive Materials (PSM) segment which grew 6% and the
Retail Branding and Information Solutions (RBIS) segment that
inched up 2%.
The PSM segment sales will rise in 2014 due to higher volumes and
higher prices and a 1% contribution from an additional week. Growth
will be driven by the emerging markets - China, India and South
America - particularly in film labels for consumer products and
food & beverages, followed by modest increase in North America
as well the European regions.
The RBIS 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 delivered 25% growth during 2013 and should
continue to rise for the next few years.
Avery reiterated its full-year 2014 adjusted earnings in the range
of $2.90 to $3.20 per share. The company remains focused on
achieving its sales growth target of 3% to 5% and net income growth
of 10-15% by 2015. Earnings growth is expected to be achieved
through continued developments in emerging markets and productivity
Avery has targeted continued strong progress through 2018,
projecting organic sales growth in the range of 4% to 5%. Operating
margin is expected to range between 9% and 10%, while adjusted
earnings per share (EPS) growth will be in the range of 12% to 15%.
For the PSM segment, Avery targets 4-5% organic sales growth for
the 2013-2018 period, aided by market share gains, emerging market
growth, accelerated growth in graphics, and performance tapes and
innovation-led growth in label and packaging materials.
The RBIS segment is expected to deliver organic sales growth in the
range of 4% to 5% by 2018, outperforming the industry growth rate
of 1-2%, helped by new product introductions and growth in RFID.
Avery expects the RFID industry to grow from approximately 3
billion units in 2013 to 9 billion units by 2018.
While the long-term story of Avery Dennison looks promising, the
reasons weighing the company down currently are its Vancive Medical
Technologies unit which is currently operating at a loss. This is
due to investment in new growth platforms (research and
development, marketing, upgrades to operations). Even though it is
expected to deliver profits in 2015, it will continue to generate
losses in 2014.
Moreover, 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.
In the second quarter, PSM results are likely to be affected by
higher raw material costs. The RBIS segment will have a tougher
time beating its year-ago volume growth of 8%.
Other Stocks to Consider
At present, Avery Dennison carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the same industry include
ARC Document Solutions, Inc.
). While Multi-Color Corp. sports a Zacks Rank #1 (Strong Buy), ARC
Document Solutions and Cenveo carry a Zacks Rank #2 (Buy).
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