Consumables

Avery Dennison Announces Third Quarter 2012 Results

Thursday 25. October 2012 - Reported EPS (including discontinued operations) of $0.57

Reported EPS from continuing operations of $0.37
Adjusted EPS (non-GAAP) from continuing operations of $0.53
Net sales declined approximately 1 percent to $1.49 billion
Sales grew approximately 6 percent on organic basis
Repurchased 7.7 million shares for $228 million in the first nine months of 2012
Raised 2012 EPS guidance; free cash flow guidance unchanged
Restructuring program on track to achieve more than $100 million in annualized savings by mid-2013
Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited third quarter 2012 results. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, the discussion of the company’s results is focused on its continuing operations.
“In the third quarter, we delivered the strongest organic sales growth since first quarter 2011,” said Dean Scarborough, Avery Dennison chairman, president and CEO. “Continued top-line momentum in Pressure-sensitive Materials and a rebound in Retail Branding and Information Solutions’ core business, as well as accelerating adoption of RFID, drove better than expected earnings for the quarter. As a result, we raised our guidance for full-year earnings per share.
“Our restructuring initiative is well under way, and we are on track to achieve more than $100 million in annualized savings by mid-2013,” Scarborough said. “The leaner cost structure that will result will enhance our competitive position and strengthen our ability to increase returns.
“We continued to repurchase shares, meeting our commitment to return more cash to shareholders while maintaining a strong balance sheet,” Scarborough said.
Third Quarter 2012 Results by Segment
All references to sales reflect comparisons on an organic basis, which exclude the estimated impact of currency translation, acquisitions and divestitures. Adjusted operating margin refers to earnings before interest expense and taxes, excluding restructuring costs and other items, as a percentage of sales.
Pressure-sensitive Materials (PSM)
Pressure-sensitive Materials segment sales increased approximately 7 percent. Within the segment and compared to prior year, Label and Packaging Materials sales increased high single digits, and Graphics and Reflective Solutions sales increased mid-single digits.
Operating margin declined 30 basis points to 7.4 percent due to higher employee-related expenses, the impact of changes in product mix, and higher restructuring costs, partially offset by the benefit of higher volume and productivity initiatives. Adjusted operating margin improved 40 basis points.
Retail Branding and Information Solutions (RBIS)
Sales increased approximately 7 percent compared to prior year driven by increased demand from U.S. and European retailers and brands, including accelerating RFID adoption.
Operating margin improved 210 basis points to 2.8 percent as the benefit of productivity initiatives, higher volume, and lower restructuring costs more than offset higher employee-related expenses and the impact of changes in product mix. Adjusted operating margin improved 90 basis points.
Other specialty converting businesses
Sales decreased approximately 1 percent due to lower volume.
Operating margin improved 310 basis points to 1.9 percent driven by increased RFID profitability, partially offset by higher restructuring costs. Adjusted operating margin improved 500 basis points.
Other
Share Repurchase
The company repurchased 2.9 million shares during the third quarter at an aggregate cost of $86 million. In the first nine months of 2012, the company repurchased 7.7 million shares at an aggregate cost of $228 million.
Results of Discontinued Operations
As previously announced, the company and 3M Company have terminated the definitive agreement under which 3M would have purchased the company’s Office and Consumer Products (OCP) business. The company is continuing to pursue a divestiture of OCP.
Earnings from OCP and certain costs associated with its anticipated divestiture are reported as income or loss from discontinued operations (net of tax) in the consolidated income statement.
Earnings per share from discontinued operations increased from $0.14 to $0.20. Adjusted earnings per share from discontinued operations increased from $0.18 to $0.20.
Income Taxes
The third quarter effective tax rate was 34.5 percent. The year-to-date adjusted tax rate for the third quarter decreased from 35.0 to 33.5 percent, in line with expectations.
Cost Reduction Actions
In the first half of 2012, the company began a restructuring program expected to be completed by mid-2013 to reduce costs across all segments of the business. The company currently anticipates more than $100 million in annualized savings from this program. To implement these actions, the company estimates that it will incur restructuring costs and other items of approximately $55 million and $25 million in 2012 and 2013, respectively.
Outlook
In the company’s supplemental presentation materials, “Third Quarter 2012 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2012 financial results. Based on the factors listed and other assumptions, the company raised its previous guidance of 2012 earnings per share from continuing operations to $1.65 to $1.70. The company maintained its free cash flow guidance. Excluding an estimated $0.35 per share for restructuring costs and other items, the company expects adjusted (non-GAAP) earnings per share from continuing operations of $2.00 to $2.05.
Note: Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.