Avery Dennison Announces Second Quarter 2018 Results

July 24, 2018

GLENDALE, Calif.--(BUSINESS WIRE)--Jul 24, 2018--Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its second quarter ended June 30, 2018. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, comparisons are to the same period in the prior year.

“We had another good quarter, with strong top-line growth and adjusted EPS up 27 percent, driven primarily by strong operating results,” said Mitch Butier, President and CEO. “Label and Graphic Materials delivered high-single digit organic growth and sustained its strong operating margin; Retail Branding and Information Solutions expanded its margin significantly on organic growth of nearly 10 percent, driven by strength in both RFID and the base business; and Industrial and Healthcare Materials delivered modest organic growth with margin in line with expectations.

“Our current year outlook for adjusted earnings has improved despite currency-related headwinds in the back half of the year,” added Butier. “Our ability to consistently achieve our strategic and financial goals in the face of significant changes in the macro environment, including the strengthening of the dollar and higher than expected inflation, demonstrates the resilience of our business and the talent of our team.”

For more details on the company’s results, see the summary table accompanying this news release, as well as the supplemental presentation materials, “Second Quarter 2018 Financial Review and Analysis”, posted on the company’s website at , and furnished to the SEC on Form 8-K.

Second Quarter 2018 Results by Segment

Sales change ex. currency refers to the increase or decrease in sales excluding the estimated impact of foreign currency translation. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations. Organic sales change refers to the increase or decrease in sales excluding the estimated impact of foreign currency translation, product line exits, and acquisitions and divestitures. Adjusted operating margin refers to income before taxes, interest expense, other non-operating expense, and other expense, net, as a percentage of sales.

Label and Graphic Materials

Reported sales increased 11.9 percent; on an organic basis, sales grew 7.3 percent. Sales on an organic basis increased at high-single digit rates in both Label and Packaging Materials and the combined Graphics and Reflective Solutions businesses. Reported operating margin decreased 430 basis points to 9.2 percent, reflecting the impact of previously announced restructuring plan. Adjusted operating margin decreased 10 basis points to 13.8 percent as the benefit from higher volume/mix was more than offset by higher employee-related costs and the net impact of pricing and raw material costs, excluding the effects of currency.

Retail Branding and Information Solutions

Reported sales increased 11.1 percent; on an organic basis, sales grew 9.5 percent, driven by strength in both radio frequency identification (RFID) solutions and the base business. Reported operating margin increased 300 basis points to 10.9 percent as the benefits from higher volume, productivity, and reduced amortization expense were partially offset by higher employee-related costs and investments. Adjusted operating margin increased 260 basis points to 11.2 percent.

Industrial and Healthcare Materials

Reported sales increased 40.0 percent. Sales ex. currency increased 35.3 percent; on an organic basis, sales grew 3.1 percent. Sales in industrial categories grew approximately 50 percent ex. currency and mid-single digits on an organic basis. Sales in healthcare categories were up low-single digits on an organic basis. Reported operating margin increased 10 basis points to 9.2 percent, as a decline in adjusted operating margin was more than offset by the lack of M&A transaction costs incurred in the prior year. Adjusted operating margin declined 170 basis points to 9.3 percent, reflecting acquisition effects and the net impact of pricing and raw material costs, partially offset by the benefit of organic volume growth.


Share Repurchases / Equity Dilution

The company repurchased 0.5 million shares in the second quarter at an aggregate cost of $51 million. Net of dilution from long-term incentives, the company’s share count at the end of the quarter was down by 1.0 million compared to the same time last year. Year-to-date, the company returned $188 million in cash to shareholders through a combination of share repurchases and dividends, up from $147 million for the same period last year.

Income Taxes

The second quarter GAAP effective tax rate was 31.4 percent, up from 19.1 percent in the prior year. The full year GAAP effective tax rate is estimated to be approximately 20 percent, reflecting the effect of the anticipated third quarter pension contribution, which is expected to be deducted on the company’s 2017 U.S. income tax return.

The adjusted non-GAAP tax rate for the quarter was 25 percent, consistent with the company’s previous guidance.

Cost Reduction Actions

In the second quarter, the company realized approximately $9 million in pretax savings from restructuring, net of transition costs, and incurred pretax restructuring charges of approximately $59 million. Most of these charges relate to severance costs associated with a previously announced restructuring plan in Europe, the vast majority of which will be paid in 2019.

U.S. Pension Plan Termination

As announced in a Form 8-K furnished on July 11, 2018, the company has begun the process to terminate 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. The company estimates that the after-tax impact of actions connected with the termination will reduce reported EPS by $0.50 to $0.70 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.


In its supplemental presentation materials, “Second Quarter 2018 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2018 financial results. Based on the factors listed and other assumptions, the company now expects 2018 reported earnings per share of $4.50 to $4.85. Excluding an estimated $1.25 to $1.45 per share for restructuring charges, pension settlement charges, and other items, the company now expects adjusted earnings per share (non-GAAP) of $5.95 to $6.10.

Note: Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.

About Avery Dennison

Avery Dennison (NYSE: AVY) is a global materials science company specializing in the design and manufacture of a wide variety of labeling and functional materials. The company’s products, which are used in nearly every major industry, include pressure-sensitive materials for labels and graphic applications; tapes and other bonding solutions for industrial, medical, and retail applications; tags, labels and embellishments for apparel; and radio frequency identification (RFID) solutions serving retail apparel and other markets. Headquartered in Glendale, California, the company employs approximately 30,000 employees in more than 50 countries. Reported sales in 2017 were $6.6 billion. Learn more at www.averydennison.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Certain statements contained in this document are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but are not limited to, risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; changes in political conditions; changes in governmental laws and regulations; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in customer preferences; fluctuations in cost and availability of raw materials; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, including the Tax Cuts and Jobs Act, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs, including risks related to the planned termination of our U.S. pension plan; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; protection and infringement of intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.

We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for our products and foreign currency fluctuations; (2) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume; (3) competitors’ actions, including pricing, expansion in key markets, and product offerings; and (4) the execution and integration of acquisitions.

For a more detailed discussion of these and other factors, see “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our 2017 Form 10-K, filed with the Securities and Exchange Commission on February 21, 2018, and subsequent quarterly reports on Form 10-Q. The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.

For more information and to listen to a live broadcast or an audio replay of the quarterly conference call with analysts, visit the Avery Dennison website at

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