Avery Earnings Fall a Penny Short
Avery Dennison Corporation (AVY) reported adjusted earnings of 65 cents per share in the first quarter of 2014, up 10% from 59 cents earned in the year-ago quarter. The results, however, missed the Zacks Consensus Estimate by a penny.
Including restructuring costs and other items, earnings from continuing operations were 73 cents per share in the quarter, compared with 66 cents in the year-ago quarter.
Total revenue increased 3% (organic as well as reported basis) to $1.55 billion from $1.49 billion in the prior-year quarter, driven by strong volume growth in Pressure-sensitive Materials. However, the reported figure fell short of the Zacks Consensus Estimate of $1.57 billion.
Cost of sales in the reported quarter rose 4% year over year to $1.14 billion. Gross profit increased 1.4% to $407.2 million from $401.7 million in the prior-year quarter. Nevertheless, gross margin contracted 50 basis points (bps) to 26.3%.
Marketing, general and administrative expenses were $296.7 million versus $300.9 million in the year-ago quarter. Adjusted operating profit increased 10% to $110.5 million. Adjusted operating margin improved 40 bps to 7.1% on a year-over-year basis.
Segmental Performance
Total revenue in the Pressure-sensitive Materials segment increased 4% to $1.14 billion. Label and Packaging Materials sales rose in mid single digits. Moreover, sales for Graphics, Reflective and Performance Tapes increased in mid double digits. Adjusted operating profit increased 4.4% to $113 million in the quarter driven by productivity improvement initiatives and higher volume, partly offset by higher employee-related expenses.
Total revenue from Retail Branding and Information Solutions increased 1% to $387.7 million from $382.7 million in the year-earlier quarter. The improvement was driven by increased demand from European retailers and brands. The segment’s adjusted operating income rose 28% to $22.6 million on productivity improvement initiatives and higher volumes, partially offset by employee-related expenses and restructuring charges.
Vancive Medical Technologies segment reported net sales of $18.9 million, up 4% from $18.2 million in the year-ago quarter. The segment reported an operating loss of $2.6 million, narrower than the year-ago quarter loss of $2.7 million.
Financial Updates
As of Mar 29, 2014, Avery reported cash and cash equivalents of $205 million versus $207.7 million as of Mar 30, 2013. The company’s cash usage from operating activities came in at $108 million in the reported quarter, compared with $65.7 million in the prior-year quarter.
Long-term debt of the company increased to $950 million as of Mar 29, 2014 from $702 million as of Mar 30, 2013. Debt-to-capitalization ratio contracted to 42.8% as of Mar 29, 2014 from 46% as of Mar 30, 2013. The company repurchased 1.2 million shares in the first quarter of 2014 at an aggregate cost of $59 million.
Cost Reduction Activities
In the first quarter, the company realized approximately $10 million of savings from the restructuring program initiated in the first half of 2012. Moreover, it incurred restructuring costs, net of gain on sale of assets, of around $7 million in the reported quarter.
Fiscal 2014 Outlook
Avery reiterated its full-year 2014 adjusted earnings in the range of $2.90 to $3.20 per share. Including an estimated $0.30 per share for restructuring costs and other items, the company reaffirmed earnings guidance in the range of $2.60 to $2.90 per share, with growth in the range of 8%–19%. The company expects to incur cash restructuring costs of $45 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 other companies in the same industry, United Stationers Inc. (USTR) will also announce first-quarter 2014 results today and ACCO Brands Corp. (ACCO) on Apr 30. Another peer, CompX International Inc. (CIX) is also expected to report its first-quarter results soon.
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