It has been about a month since the last earnings report for Avery Dennison (AVY). Shares have lost about 5.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Avery Dennison due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Avery Dennison Q2 Earnings & Sales Beat Estimates
Avery Dennison reported adjusted earnings of $1.66 per share in second-quarter 2018, up 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 in the year-ago quarter.
Total revenues jumped around 14% to $1.85 billion from $1.63 billion a year ago. The revenue figure also surpassed the Zacks Consensus Estimate of $1.81 billion.
Cost of sales in the second 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%.
Marketing, general and administrative expenses came in at $288 million compared with $271 million 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 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 $14 million in the year-ago quarter. Financial Updates
Avery Dennison had cash and cash equivalents of $215 million at the end of the second quarter, up from $209 million 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 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 second quarter, Avery Dennison repurchased 0.5 million shares for a total 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 in 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 around $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. Guidance
For 2018, Avery Dennison raised adjusted earnings per share guidance to $5.95-$6.10 from $5.85-$6.05.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimate.
Currently, Avery Dennison has a great Growth Score of A, though it is lagging a lot on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for value and to a lesser degree momentum.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Avery Dennison has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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