On Jun 27, we maintained our Outperform recommendation on
Avery Dennison Corporation
), a pressure-sensitive materials producer and provider of wide
variety of information and brand management solutions. The
reiteration was based on expected benefits from restructuring
initiatives and divestiture of its underperforming Office and
Consumer Products unit.
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Avery's adjusted earnings increased 37% year over year to 59
cents per share in first-quarter 2013 and revenues rose 4% year
over year to $1.5 billion. For 2013, Avery expects adjusted
earnings in the range of $2.40 to $2.75 per share. Free cash flow
from continuing operations is expected between $275 million and
$315 million in 2013.
In order to attain its financial targets of double-digit earnings
growth and higher returns, Avery has aggressively implemented a
restructuring program to reduce costs across all business
segments. The program is anticipated to be completed by mid-2013.
Avery expects to save more than $100 million annually by
leveraging this program by mid-2013.
Avery's Office and Consumer Products segment has been struggling
for a long time due to weak end-market demand and cut-throat
competition in the label category. In Jan 2013, Avery agreed to
divest the segment along with its Designed and Engineered
Solutions businesses to CCL Industries Inc., a global leader in
specialty packaging solutions.
The net sale proceeds of approximately $400 million will be
utilized to repurchase shares and make an additional pension
contribution. With the divestiture of the weaker Office Products
business, Avery will be able to focus on its market-leading,
pressure-sensitive materials business and Retail Branding and
Information Solutions segment.
Avery remains committed to its long-term targets (by 2015) of
sales growth in the range of 3% to 5% and net income growth of
10-15%. Earnings per share growth of 15-20% is expected to be
achieved through continued growth in emerging markets and
In addition, the company expects to generate free cash flow of
around $1.2 billion - $1.4 billion over the 2012-2015 timeframe
or $1.6 billion -$1.8 billion (including $400 million from the
abovementioned sale). This will be utilized toward - $150-300
million in debt repayment, more than $200 million for
acquisitions and $1-1.5 billion will be returned to shareholders
over the period in combined share buyback and dividends.
Other Stocks to Consider
Other stocks in the same industry with favorable Zacks rank are
CompX International Inc.
Energizer Holdings Inc.
Bemis Company, Inc.
), all carrying a Zacks Rank #2 (Buy).