What's in the Cards for Avery Dennison (AVY) in Q3 Earnings?

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Avery Dennison CorporationAVY is scheduled to release third-quarter 2018 financial numbers before the opening bell on Oct 23.

Avery Dennison surpassed the Zacks Consensus Estimate in each of the trailing four quarters, generating an average positive surprise of 6.10%. In the last reported quarter, it delivered a positive earnings surprise of 6.41%.

Let's see how things are shaping up for this announcement.

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Key Factors to Consider

With regard to the Avery Dennison Pension Plan (ADPP) termination approved in July 2018, the company contributed $200 million to the ADPP in August and has decided to deduct the contribution from its 2017 U.S. federal income tax return. Thus, the company expects to recognize the tax benefit from deducting the contribution at a higher tax rate as a measurement period adjustment during the third quarter.

Nevertheless, the company expects to deliver improved results for the quarter to be reported, backed by acquisitions, organic growth and impressive presence in emerging markets. Further, Avery Dennison's aggressive cost cutting and restructuring actions, as part of the current optimization program, will likely lead to higher savings and earnings in the to-be-reported quarter.

The company will also benefit from its faster growing high-value product categories, such as specialty labels, industrial tapes and Radio-frequency identification. However, in addition to the charges regarding the termination of its pension plan as mentioned above, negative impact of currency translation and raw material price inflation will also impede Avery Dennison's performance.

Nevertheless, the Zacks Consensus Estimate for earnings per share for the Sep-end quarter is pegged at $1.46, reflecting year-over-year growth of around 16%. The Zacks Consensus Estimate for total sales of $1.74 billion also indicates 3.6% growth from the prior-year quarter.

The company's Industrial and Healthcare Materials segment will benefit from the Yongle, Finesse and Mactac acquisitions in the quarter under review. We expect quarterly sales for the segment to be $174 million in the quarter, up around 3% year over year.

Our consensus estimates indicate that sales of the Label and Graphic Materials segment will reach $1,183 million in the Jul-Sep quarter, indicating 4% year-over-year growth. The segment's performance will be aided by growth in emerging markets, focus on high-value categories (including specialty labels), as well as contributions from productivity initiatives.

The estimate for the Retail Branding and Information Solutions segment's sales for the quarter to be reported is $400 million, reflecting year-over-year increase of 7%. The company expects to witness strong engagement among apparel retailers and brands, as well as promising early-stage developments in other end markets.

Avery Dennison's shares have outperformed the industry 's performance in the past year. The stock has lost around 1% compared with the industry's loss of 4%.

Here's What Our Quantitative Model Predicts

Our proven model does not show that Avery Dennison is likely to beat earnings estimates this quarter. This is because a stock needs to have both - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. That is not the case here as you will see below.

Earnings ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate of $1.45 and the Zacks Consensus Estimate of $1.46, is -0.86%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Avery Dennison currently carries a Zacks Rank #4 (Sell), which makes surprise prediction inconclusive.

As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

Tetra Tech, Inc. TTEK has an Earnings ESP of +0.96% and a Zacks Rank #1. Its shares have gained 39% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here .

Flowserve Corporation FLS has an Earnings ESP of +1.72% and a Zacks Rank #2. The stock has gained 16% in a year's time.

AptarGroup, Inc. ATR has an Earnings ESP of +2.15% and a Zacks Rank #2. The company's shares have been up 19% during 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: ATR , FLS , AVY , TTEK

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