Avery Dennison (AVY) Up 8.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Avery Dennison (AVY). Shares have added about 8.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Avery Dennison due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Avery Dennison Q4 Earnings Beat Estimates, Rise Y/Y

Avery Dennison has delivered adjusted earnings of $2.16 per share in fourth-quarter 2023, beating the Zacks Consensus Estimate of $2.15. The bottom line increased 31% year-over-year.  

Including one-time items, the company has reported earnings per share (EPS) of $1.77 compared with the year-ago quarter’s $1.51.

Total revenues moved up 4.2% year over year to $2.11 billion, beating the Zacks Consensus Estimate of $2.09 billion. Volumes in both segments were up sequentially.

The cost of sales in the quarter dipped 0.7% year over year to $1.51 billion . The gross profit rose 19.2% year over year to $596 million.

Marketing, general and administrative expenses were $335 million compared with the $312 million incurred in the year-ago quarter. The adjusted operating profit was around $261 million compared with the prior-year quarter’s $188 million. The adjusted operating margin was 12.4% compared with 9.3% in the prior-year quarter.

Segmental Highlights

Revenues in the Materials Group segment declined 1.6% year over year to $1.42 billion  in the reported quarter. The reported figure missed our estimate of $1.49 billion . On an organic basis, sales were down 3.9%. We predicted organic sales to rise 1.2%. The segment’s adjusted operating profit increased 31.9% year over year to $198 million.

Revenues in the Solutions Group were up 18.3% year over year to $692 million. We estimated revenues of $605 million for this segment. On an organic basis, sales improved 13.9% year over year. Our model predicted a rise of 0.9%. The variance was driven by a sequential improvement in Apparel Solutions volume. The segment’s adjusted operating income rose 51.6% year over year to $80.5 million.

Financial Updates

The company returned $394 million in cash to shareholders through share repurchases and dividend payments in 2023. AVY repurchased 0.8 million shares throughout the year.

Avery Dennison ended 2023 with cash and cash equivalents of $215 million compared with $167 million at the end of the prior year.

The company’s long-term debt was $2.62 billion  at the end of 2023, up from $2.50 billion  at the end of 2022. The company’s net debt to adjusted EBITDA ratio was 2.4X.

AVY realized approximately $69 million in pre-tax savings from restructuring (net of transition costs) in 2023. The company also incurred pre-tax restructuring charges of around $79 million.

2023 Performance

Adjusted EPS decreased 14% year over year to $7.90 in 2023 but topped the Zacks Consensus Estimate of $7.87. Including one-time items, EPS was $6.20 in 2023, down 33% from the $9.21 reported in 2022.

Total revenues declined 7.5% year over year to $8.36 billion. The top line figure topped the Zacks Consensus Estimate of $8.34 billion.

Guidance for 2024

Avery Dennison expects adjusted EPS between $9.00 and $9.50 for 2024.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 6.63% due to these changes.

VGM Scores

Currently, Avery Dennison has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Avery Dennison has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Avery Dennison belongs to the Zacks Office Supplies industry. Another stock from the same industry, Xerox Holdings Corporation (XRX), has gained 0.6% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.

Xerox Holdings Corporation reported revenues of $1.77 billion in the last reported quarter, representing a year-over-year change of -9.1%. EPS of $0.43 for the same period compares with $0.89 a year ago.

Xerox Holdings Corporation is expected to post earnings of $0.37 per share for the current quarter, representing a year-over-year change of -24.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +8.8%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Xerox Holdings Corporation. Also, the stock has a VGM Score of A.

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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.

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