Avery Dennison (AVY) Q2 Earnings & Sales Beat Estimates

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Avery Dennison Corporation AVY reported adjusted earnings of $1.66 per share in second-quarter 2018, which surged around 27% year over year. The figure also beat the Zacks Consensus Estimate of $1.56. The year-over-year improvement was mainly driven by strong operating results.

Including one-time items, the company reported earnings of $1.07 per share in the quarter down from $1.34 per share recorded in the comparable year-ago period.

Total revenues jumped around 14% to $1.85 billion from $1.63 billion recorded in the year-earlier quarter. The revenue figure also surpassed the Zacks Consensus Estimate of $1.81 billion.

Cost of sales in the first quarter went up 15% year over year to $1.35 billion. Gross profit increased around 11% year over year to $501 million, while gross margin contracted 80 basis points (bps) to 27%.

Avery Dennison Corporation Price, Consensus and EPS Surprise

Avery Dennison Corporation Price, Consensus and EPS Surprise

Avery Dennison Corporation price-consensus-eps-surprise-chart | Avery Dennison Corporation Quote

Marketing, general and administrative expenses came in at $288 million compared with $271 million reported in the year-ago quarter. Adjusted operating profit advanced 18% year over year to $214 million. Adjusted operating margin expanded 30 bps on a year-over-year basis to 11.5%.

Segmental Performance

Revenues from the Label and Graphic Materials ("LGM") segment climbed around 12% year over year to $1,257 million. On an organic basis, sales grew around 7.3%. Adjusted operating profit rose 11% to $173 million from the prior-year quarter.

Revenues from the Retail Branding and Information Solutions segment were up 11% to $417 million from $375 million recorded in the year-ago quarter. On an organic basis, sales grew 9.5%. The segment's adjusted operating income improved around 45% to $46.7 million.

The Industrial and Healthcare Materials segment reported net sales of $180 million, up 40% from $129 million recorded in the prior-year quarter. The segment reported adjusted operating income of $17 million compared with operating profit of $14 million recorded in the year-ago period.

Financial Updates

Avery Dennison had cash and cash equivalents of $215 million at the end of the second quarter, up from $209 million reported at the end of the year-ago quarter. The company generated $210 million in cash from operating activities during the first half of fiscal 2018 compared with $176 million recorded in the prior-year comparable period.

Avery Dennison's long-term debt increased to $1,290 million as of Jun 30, 2018, compared with $1,276 million as of Apr 1, 2017.

During the first quarter, Avery Dennison repurchased 0.5 million shares for a total cost of $51 million. So far in the fiscal, the company returned $188 million in cash to shareholders through a combination of share repurchases and dividends, up from $147 million for the comparable period last year.

Cost-Reduction Activities

Avery Dennison realized approximately $9 million in pre-tax savings from restructuring in the second quarter. The company incurred restructuring charges of approximately $59 million.

U.S. Pension Plan Termination

Avery Dennison has begun the termination process of the Avery Dennison Pension Plan, a tax-qualified U.S. defined benefit plan. The company expects to contribute $200 million in cash to the plan in 2018, and an estimated $40 million in cash during 2019, to fully fund the plan and complete the transaction.

After-tax impact of actions associated with the termination will impact reported earnings per share by 50 to 70 cents in 2018, and an additional $4.25 to $4.45 during 2019, reflecting estimated total pre-tax settlement charges in the range of $575 million to $600 million.


For 2018, Avery Dennison raised adjusted earnings per share guidance to $5.95-$6.10 from $5.85-$6.05.

Share Price Performance

Over the past year, Avery Dennison has outperformed its industry with respect to price performance. The stock has gained 9%, while the industry recorded growth of 11%.

Zacks Rank & Key Picks

Avery Dennison currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the same industry include Installed Actuant Corporation ATU , DMC Global Inc. BOOM and Graco Inc. GGG . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Actuant has a long-term earnings growth rate of 15.6%. Its shares have rallied 15% over the past year.

DMC Global has a long-term earnings growth rate of 20%. The company's shares have appreciated 264% in a year's time.

Graco has a long-term earnings growth rate of 10%. Its shares have gained 31% in a year's time. 

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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 Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: ATU , GGG , BOOM , AVY

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