Avery Dennison (AVY) Beats Q2 Earnings by a Penny, Up Y/Y - Analyst Blog

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Avery Dennison Corporation ( AVY ) reported adjusted earnings of 80 cents per share in the second quarter of 2014, up 12.7% from 71 cents earned in the year-ago quarter. The results beat the Zacks Consensus Estimate by a penny.

Including restructuring costs and other items, earnings from continuing operations were 46 cents per share in the quarter, compared with 70 cents in the year-ago quarter.

Total revenue increased 4% (organic as well as on reported basis) to $1.62 billion from $1.55 billion in the prior-year quarter, surpassing the Zacks Consensus Estimate of $1.61 billion. Year-over-year sales growth was driven by strong volume growth in Pressure-sensitive Materials.

Cost of sales in the reported quarter rose 4.7% year over year to $1.19 billion. Gross profit increased 2.7% to $428.2 million from $417.5 million in the prior-year quarter. However, gross margin contracted 40 basis points (bps) to 26.5%.

Marketing, general and administrative expenses were $297 million versus $293.5 million in the year-ago quarter. Adjusted operating profit increased 6% to $131.2 million. Adjusted operating margin improved 10 bps to 8.1% on a year-over-year basis.

Avery Dennison Corporation - Earnings Surprise | FindTheBest

Segmental Performance

Total revenue in the Pressure-sensitive Materials segment increased 6% to $1.18 billion. Label and Packaging Materials sales rose in the mid-single digits. Moreover, sales for Graphics, Reflective and Performance Tapes increased in the low-double digits. Adjusted operating profit remained flat at $119 million in the quarter compared with the year-ago quarter.

Total revenue from Retail Branding and Information Solutions segment declined 1% to $414.4 million from $419.6 million in the year-earlier quarter due to decreased demand from U.S. based retailers and brands, partly offset by increased demand from European retailers and brands. The segment's adjusted operating income rose 14.5% to $33.9 million.

Vancive Medical Technologies segment reported net sales of $20.5 million, up 9% from $18.8 million in the year-ago quarter. The segment reported an operating loss of $1.7 million, narrower than the year-ago quarter loss of $2.8 million.

Financial Updates

Avery ended the quarter with cash and cash equivalents of $221.9 million, up from $211.6 million at the prior-year quarter-end. Cash provided by operating activities for the period of six months ended Jun 28, 2014 was $9.8 million compared with $46.7 million in the year-ago period.

Long-term debt of the company decreased to $945.2 million as of Jun 28, 2014 from $951.4 million as of Jun 29, 2013. Debt-to-capitalization ratio contracted to 45.1% as of Jun 28, 2014 from 47.8% as of Jun 29, 2013. The company repurchased 3.1 million shares in the first half of 2014 at an aggregate cost of $153 million.

Cost Reduction Activities

In the second quarter, the company realized approximately $10 million of savings from the restructuring. Moreover, it incurred restructuring costs of around $40 million in the reported quarter.

Fiscal 2014 Outlook

Avery raised its full-year 2014 outlook for adjusted earnings per share from the range of $2.90-$3.20 to $3.00-$3.10. Including an estimated $0.35 per share for restructuring costs and other items, the company increased earnings guidance in the range of $2.65-$2.75 from $2.60-$2.90 per share.

However, the company has lowered the guidance for full-year adjusted earnings per share growth to 12%-16% from its previous range of 8%-19%. The company expects to incur cash restructuring costs of $50 million in 2014.

Pasadena, CA-based Avery Dennison manufactures pressure-sensitive materials and tickets, tags, labels and other converted products. The company has over 200 manufacturing and distribution facilities in more than 60 countries.

Currently, Avery has a Zacks Rank #3 (Hold). Among better-ranked stocks from the sector Blount International Inc. ( BLT ) sports a Zacks Rank #1 (Strong Buy).

Avery's peer, ACCO Brands Corp. ( ACCO ) will announce its second-quarter 2014 results on Jul 30 and CompX International Inc. ( CIX ) is expected to report its second-quarter results soon.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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