Avery Dennison (AVY) Q3 Earnings Miss, Sales Top Estimates

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Avery Dennison Corporation AVY reported adjusted earnings of $1.45 per share in third-quarter 2018, which increased around 15% year over year. Earnings, however, missed the Zacks Consensus Estimate by a penny.

Including one-time items, the company's earnings surged 41% to $1.69 per share from $1.20 per share recorded in the year-ago quarter.

Total revenues jumped around 5% to $1.76 billion from $1.68 billion recorded in the year-earlier quarter. The revenue figure also surpassed the Zacks Consensus Estimate of $1.74 billion.

Avery Dennison Corporation Price, Consensus and EPS Surprise

Avery Dennison Corporation Price, Consensus and EPS Surprise | Avery Dennison Corporation Quote

Cost of sales in the quarter went up 6% year over year to $1.30 billion. Gross profit increased around 1.7% year over year to $459 million, while gross margin contracted 80 basis points (bps) to 26.1%.

Marketing, general and administrative expenses came in at $271 million compared with $274 million reported in the year-ago quarter. Adjusted operating profit advanced 6% year over year to $189 million. Adjusted operating margin expanded 10 bps on a year-over-year basis to 10.7%.

Segmental Performance

Revenues from the Label and Graphic Materials segment climbed around 5% year over year to $1,194 million. On an organic basis, sales grew around 6%. Adjusted operating profit declined 2.5% to $147 million from the prior-year quarter.

Revenues from the Retail Branding and Information Solutions segment went up 7% to $398 million, from $374 million recorded in the year-ago quarter. On an organic basis, sales were up 8%. The segment's adjusted operating income improved around 36% to $45 million.

The Industrial and Healthcare Materials segment reported net sales of $167 million, edging down 0.8% from $ the prior-year quarter. The segment reported adjusted operating income of $15 million compared with $14 million recorded in the year-ago quarter.

Financial Updates

Avery Dennison had cash and cash equivalents of $218 million at the end of the third quarter, up from $232 million reported at the end of the prior-year quarter. The company generated $188 million in cash from operating activities for the nine-month period ended Sep 29, 2018, compared with $390 million recorded in the comparable period last year.

Avery Dennison's long-term debt decreased to $1,295 million as of Sep 29, 2018, compared with $1,298 million as of Sep 30, 2017.

During the reported quarter, Avery Dennison repurchased 0.7 million shares for a total cost of $72 million. Year to date, the company returned $306 million in cash to shareholders through a combination of share repurchases and dividends, up from $221 million for the comparable period last year.

Cost-Reduction Activities

Avery Dennison realized approximately $6 million in pre-tax savings from restructuring in the Jul-Sep quarter. The company recognized a net benefit in pretax restructuring charges of $6.4 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 contributed $200 million to the plan during the third quarter using commercial paper borrowings. It expects to contribute an additional estimated $30 million 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 50-70 cents in 2018, and an additional $4.25-$4.45 during 2019, reflecting estimated total pre-tax settlement charges in the range of $575-$600 million.


For 2018, Avery Dennison maintained its adjusted earnings per share guidance of $5.95-$6.10.

Share Price Performance

Over the past year, Avery Dennison has outperformed its industry with respect to price performance. The stock has lost 2%, while the industry has recorded loss of around 5%.

Zacks Rank & Key Picks

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

Better-ranked stocks in the same sector include Atkore International Group Inc. ATKR , Donaldson Company, Inc. DCI and Enersys ENS . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Atkore International has a long-term earnings growth rate of 10%. The stock has gained 15% in a year's time.

Donaldson Company has a long-term earnings growth rate of 11.5%. Its shares have rallied 11% in the past year.

Enersys has a long-term earnings growth rate of 10%. The company's shares have been up 15% over the past year.

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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: ATKR , AVY , DCI , ENS

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