U.S. Markets closed

Avery Dennison Announces First Quarter 2019 Results

GLENDALE, Calif.--(BUSINESS WIRE)--

  • Pension settlement charges of $3.13 per share, net of tax, drove a loss in reported income; reported EPS of ($1.74)
    • Adjusted EPS (non-GAAP) of $1.48
  • 1Q19 Net sales declined 2.0% to $1.74 billion
    • Organic sales change (non-GAAP) of 2.4%
  • FY19 reported EPS guidance increased to $3.10 to $3.35, due to lower-than-expected pension settlement charges
    • FY19 adjusted EPS guidance reaffirmed at $6.45 to $6.70

Avery Dennison Corporation (AVY) today announced preliminary, unaudited results for its first quarter ended March 30, 2019. 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.

“Our Q1 performance was solid, given a challenging start to the year, with adjusted earnings in line with our expectations,” said Mitch Butier, President and CEO.

“In the Label and Graphic Materials segment, organic growth slowed, while profitability was solid. We expect organic growth and operating margin to improve through the course of the year. Retail Branding and Information Solutions continues to deliver, with another quarter of strong sales growth for RFID products, solid growth in the base business, and significant margin expansion. And, despite a modest organic sales decline, Industrial and Healthcare Materials delivered strong margin expansion through increased productivity.

“We reaffirm our previous guidance for 2019 adjusted earnings per share, with organic growth improving over the balance of the year, along with continued margin expansion,” added Butier. “Our ongoing confidence in our ability to achieve our guidance and long-term targets reflects the resilience of our business and ability of our team to adapt under changing market conditions.”

First Quarter 2019 Results by Segment

Label and Graphic Materials

  • Reported sales declined 3.3 percent; on an organic basis, sales grew 1.4 percent, as prior year pricing actions more than offset a modest decline in volume/mix. On an organic basis, sales increased modestly in Label and Packaging Materials, and were up low-single digits in the combined Graphics and Reflective Solutions businesses.
  • Reported operating margin decreased 50 basis points to 11.8 percent, reflecting higher employee-related costs, lower volume, and transition costs associated with the European restructuring plan. Adjusted operating margin also decreased 50 basis points to 12.5 percent.

Retail Branding and Information Solutions

  • Reported sales increased 3.2 percent; on an organic basis, sales grew 7.0 percent driven by continued strength in radio frequency identification (RFID) solutions and solid growth in the base business.
  • Reported operating margin increased 390 basis points to 12.9 percent, as a decline in restructuring charges, increased volume, and lower currency-related costs more than offset higher employee-related costs. Adjusted operating margin increased 220 basis points to 12.4 percent.

Industrial and Healthcare Materials

  • Reported sales declined 5.1 percent; on an organic basis, sales declined by 1.0 percent. On an organic basis, sales in industrial categories were down low-single digits (up mid-single digits excluding products serving global automotive markets), while sales in healthcare categories were up low-single digits.
  • Reported operating margin increased 80 basis points to 8.3 percent as the benefit of productivity actions more than offset the impacts of lower volume and higher restructuring charges. Adjusted operating margin increased 200 basis points to 9.5 percent.

Other

Share Repurchases / Equity Dilution

The company repurchased 0.9 million shares in the first quarter at an aggregate cost of $89 million. Net of dilution from long-term incentive awards, the company’s share count decreased 0.4 million in the quarter. The cost of repurchases, net of proceeds from stock option exercises, was $83 million.

Income Taxes

The first quarter effective tax rate on the reported pre-tax loss was 48.7 percent, compared to 20.9 percent in the prior year, reflecting the tax impacts of the pension settlement charges associated with the termination of the U.S. pension plan. The adjusted tax rate for the quarter was 25 percent, consistent with the company’s current expectation for its full year adjusted tax rate.

Cost Reduction Actions

In the first quarter, the company realized approximately $5 million in pretax savings from restructuring, net of transition costs, and incurred pretax restructuring charges of approximately $11 million, consisting almost entirely of cash costs related to severance.

U.S. Pension Plan Termination

On March 21, 2019, the company effectively settled its liabilities associated with its previously announced termination of the Avery Dennison Pension Plan (ADPP), a tax-qualified U.S. defined benefit plan, through the execution of an agreement to purchase annuities from American General Life Insurance Company (“AGL”), a subsidiary of American International Group, Inc. Under the agreement, the company settled approximately $750 million of pension obligations for approximately 8,500 active and former employees and their beneficiaries, with AGL assuming the future annuity payments for these individuals, commencing April 1, 2019. This settlement resulted in $447 million of pretax charges, partially offset by related tax benefits of $180 million, which the company recorded in March 2019.

The company contributed approximately $7 million of cash to the ADPP during the first quarter of 2019 to cover costs associated with the settlement of these liabilities.

Outlook

In its supplemental presentation materials, “First Quarter 2019 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2019 financial results. Based on the factors listed and other assumptions, the company has increased its guidance for 2019 reported earnings per share to $3.10 to $3.35, reflecting lower-than-expected costs to settle its U.S. pension plan liabilities.

Excluding an estimated $3.35 per share related to pension settlement charges, restructuring charges and other items, the company continues to expect adjusted earnings per share of $6.45 to $6.70.

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

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

Sales change ex. currency refers to the increase or decrease in net sales excluding the estimated impact of foreign currency translation and currency adjustment for transitional reporting of highly inflationary economies (Argentina), with segment results adjusted for reclassification of sales between segments. 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 sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year. Adjusted operating margin refers to income before taxes, interest expense, other non-operating expense, and other expense, net, as a percentage of net sales.

About Avery Dennison

Avery Dennison (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 2018 were $7.2 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 our markets due to competitive conditions, technological developments, laws and regulations, and 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 U.S. 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; 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 2018 Form 10-K, filed with the Securities and Exchange Commission on February 27, 2019. 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 www.investors.averydennison.com.

                                           
 
First Quarter Financial Summary - Preliminary, unaudited
(In millions, except % and per share amounts)
                     
% Sales Change vs. P/Y
1Q 1Q Ex.
  2019     2018   Reported Currency (a) Organic (b)
 
Net sales, by segment:
Label and Graphic Materials $ 1,178.3 $ 1,218.2 (3.3 %) 1.4 % 1.4 %
Retail Branding and Information Solutions 398.3 386.0 3.2 % 7.0 % 7.0 %
Industrial and Healthcare Materials   163.5     172.2   (5.1 %) (1.0 %) (1.0 %)
Total net sales $ 1,740.1 $ 1,776.4 (2.0 %) 2.4 % 2.4 %
                                   
As Reported (GAAP) Adjusted Non-GAAP (c)
1Q 1Q % % of Sales 1Q 1Q % % of Sales
  2019     2018   Change 2019   2018     2019     2018   Change 2019   2018  

Operating income (loss) / operating margins before interest, other non-operating expense, and taxes, by segment:

Label and Graphic Materials $ 139.5 $ 149.7 11.8 % 12.3 % $ 147.1 $ 157.8 12.5 % 13.0 %
Retail Branding and Information Solutions 51.4 34.7 12.9 % 9.0 % 49.4 39.4 12.4 % 10.2 %
Industrial and Healthcare Materials 13.6 13.0 8.3 % 7.5 % 15.5 13.0 9.5 % 7.5 %
Corporate expense   (22.9 )   (21.8 )   (22.9 )   (21.8 )

Total operating income / operating margins before interest, other non-operating expense, and taxes

$ 181.6 $ 175.6 3 % 10.4 % 9.9 % $ 189.1 $ 188.4 --- 10.9 % 10.6 %
 
Interest expense $ 19.5 $ 13.2 $ 19.5 $ 13.2
 
Other non-operating expense (income) (d) $ 446.5 $ 3.3 ($0.4 ) $ 2.8
 
(Loss) income before taxes ($284.4 ) $ 159.1 (279 %) (16.3 %) 9.0 % $ 170.0 $ 172.4 (1 %) 9.8 % 9.7 %
 
(Benefit from) provision for income taxes (e) ($138.4 ) $ 33.3 $ 42.5 $ 43.1
 
Equity method investment net losses ($0.9 ) ($0.6 ) ($0.9 ) ($0.6 )
 
Net (loss) income ($146.9 ) $ 125.2 (217 %) (8.4 %) 7.0 % $ 126.6 $ 128.7 (2 %) 7.3 % 7.2 %
 
Net (loss) income per common share, assuming dilution ($1.74 ) $ 1.40 (224 %) $ 1.48 $ 1.44 3 %
 
 
Free Cash Flow (f) $ 7.3 ($19.7 )
                                           
 
  See accompanying schedules A-4 to A-7 for reconciliations from GAAP to non-GAAP financial measures.
 
(a) Sales change ex. currency refers to the increase or decrease in net sales excluding the estimated impact of foreign currency translation and currency adjustment for transitional reporting of highly inflationary economies (Argentina), with segment results adjusted for the reclassification of sales between segments. 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.
 
(b) Organic sales change refers to sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year.
 
(c) Excludes impact of restructuring charges and other items.
 
(d) As reported '"Other non-operating expense" for the first quarters of 2019 and 2018 includes $446.9 and $.5, respectively, of pension plan settlements and related charges.
 
(e) As reported "(Benefit from) provision for income taxes" for the first quarter of 2019 includes tax benefit of approximately $179.8 related to the termination of our U.S. pension plan.
 
(f) Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for the cash contributions related to the termination of our U.S. pension plan.
 
 

A-1

 
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
       
(UNAUDITED)
Three Months Ended
 
Mar. 30, 2019 Mar. 31, 2018
             
 
Net sales $ 1,740.1 $ 1,776.4
Cost of products sold       1,274.7         1,293.0  
Gross profit 465.4 483.4
Marketing, general and administrative expense 276.3 295.0
Other expense, net(1) 7.5 12.8
Interest expense 19.5 13.2
Other non-operating expense(2)       446.5         3.3  
(Loss) income before taxes (284.4 ) 159.1
(Benefit from) provision for income taxes(3) (138.4 ) 33.3
Equity method investment net losses       (0.9 )       (0.6 )
Net (loss) income     $ (146.9 )     $ 125.2  
 
Per share amounts:
Net (loss) income per common share     $ (1.74 )     $ 1.42  
Net (loss) income per common share, assuming dilution     $ (1.74 )     $ 1.40  
 
Weighted average number of shares outstanding:
Common shares 84.3 88.0
Common shares, assuming dilution(4)       84.3         89.6  
 
(1)   "Other expense, net" for the first quarter of 2019 includes severance and related costs of $10.4 and lease cancellation charges of $.3, partially offset by gain on sales of assets of $3.2.
 
"Other expense, net" for the first quarter of 2018 includes severance and related costs of $4.3, asset impairment and lease cancellation charges of $8.4, and other restructuring-related charge of $.5, partially offset by net gain on sales of assets of $.4.
 
(2) "Other non-operating expense" for the first quarters of 2019 and 2018 includes $446.9 and $.5, respectively, of pension plan settlements and related charges.
 
(3) "(Benefit from) provision for income taxes" for the first quarter of 2019 includes tax benefit of approximately $179.8 related to the termination of our U.S. pension plan.
 
(4) In 2019, the effect of dilutive shares (additional common shares issuable under stock-based awards) was not included because we had a net loss.
 
       

A-2

 
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 
(UNAUDITED)
ASSETS    

Mar. 30, 2019

 

 

Mar. 31, 2018

Current assets:
Cash and cash equivalents $ 225.7 $ 187.5
Trade accounts receivable, net 1,198.7 1,240.0
Inventories, net 688.3 678.2
Other current assets       211.0         226.6  
Total current assets 2,323.7 2,332.3
Property, plant and equipment, net 1,144.9 1,117.6
Goodwill and other intangibles resulting from business acquisitions, net 1,077.8 1,172.3
Non-current deferred income taxes 191.5 215.5
Other assets       615.8         442.8  
      $ 5,353.7       $ 5,280.5  
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities:
Short-term borrowings and current portion of long-term debt and finance leases $ 350.3 $ 370.3
Accounts payable 1,033.7 1,064.4
Other current liabilities       656.5         646.7  
Total current liabilities 2,040.5 2,081.4
Long-term debt and finance leases 1,759.9 1,342.7
Other long-term liabilities 561.4 766.7
Shareholders' equity:
Common stock 124.1 124.1
Capital in excess of par value 839.6 848.4
Retained earnings 2,675.4 2,647.8
Treasury stock at cost (2,287.8 ) (1,891.0 )
Accumulated other comprehensive loss       (359.4 )       (639.6 )
Total shareholders' equity       991.9         1,089.7  
      $ 5,353.7       $ 5,280.5  
 
In the first quarter of 2019, we adopted Accounting Standards Codification ("ASU") No. 2016-02, Leases. This ASU requires lessees to recognize the rights and obligations created by leases on their balance sheets. As allowed under this ASU, we have elected to apply the guidance using a modified retrospective approach, under which it applies to all leases that exist at or commence after the date of our initial application. As such, prior year comparative periods have not been restated.
 
       

A-3

 
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
(UNAUDITED)
Three Months Ended
     

Mar. 30, 2019

   

Mar. 31, 2018

 
Operating Activities:
Net (loss) income $ (146.9 ) $ 125.2
 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation 34.9 34.3
Amortization 9.6 10.2
Provision for doubtful accounts and sales returns 14.8 12.9
Stock-based compensation 7.6 7.4
Pension plan settlements and related charges 446.9 0.5
Deferred income taxes and other non-cash taxes (172.8 ) (8.0 )
Other non-cash expense and loss 3.3 24.0
Changes in assets and liabilities and other adjustments       (162.0 )       (190.5 )
Net cash provided by operating activities       35.4         16.0  
Investing Activities:
Purchases of property, plant and equipment (41.8 ) (35.6 )
Purchases of software and other deferred charges (5.5 ) (7.3 )
Proceeds from sales of property, plant and equipment 7.3 6.9
Proceeds from insurance and sales (purchases) of investments, net 4.5 0.3
Payments for investments in businesses       (6.5 )       (0.1 )
Net cash used in investing activities       (42.0 )       (35.8 )
Financing Activities:
Net increase in borrowings (maturities of three months or less) 155.4 104.3
Repayments of long-term debt and finance leases (1.8 ) (1.0 )
Dividends paid (43.9 ) (39.6 )
Share repurchases (88.7 ) (51.6 )
Net (tax withholding) proceeds related to stock-based compensation (20.1 ) (31.4 )
Payments of contingent consideration       (1.6 )       (2.5 )
Net cash used in financing activities       (0.7 )       (21.8 )
Effect of foreign currency translation on cash balances       1.0         4.7  
Decrease in cash and cash equivalents (6.3 ) (36.9 )
Cash and cash equivalents, beginning of year       232.0         224.4  
Cash and cash equivalents, end of period     $ 225.7       $ 187.5  
 
 

A-4

 
Reconciliation of Non-GAAP Financial Measures to GAAP
 
We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement the presentation of our financial results that are prepared in accordance with GAAP. Based upon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessment of our performance and operating trends, as well as liquidity.
 
Our non-GAAP financial measures exclude the impact of certain events, activities or strategic decisions. The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it difficult to assess our underlying performance in a single period. By excluding the accounting effects, both positive or negative, of certain items (e.g., restructuring charges, legal settlements, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension obligations, gains or losses on sales of certain assets, and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. These non-GAAP financial measures are used internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing.
 
We use the following non-GAAP financial measures in the accompanying news release and presentation:
 
Sales change ex. currency refers to the increase or decrease in net sales excluding the estimated impact of foreign currency translation and currency adjustment for transitional reporting of highly inflationary economies (Argentina), with segment results adjusted for the reclassification of sales between segments. 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 sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year.
 
We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the ongoing activities of our businesses and enhance their ability to evaluate our results from period to period.
 
Adjusted operating income refers to income before taxes, interest expense, other non-operating expense, and other expense, net.
 
Adjusted operating margin refers to adjusted operating income as a percentage of net sales.
 
Adjusted tax rate refers to the projected full-year GAAP tax rate, adjusted to exclude certain unusual or infrequent events that are expected to significantly impact that rate, such as impacts related to the enactment of the TCJA and our U.S. pension plan termination, effects of certain discrete tax planning actions, and other items.
 
Adjusted net income refers to income before taxes, tax-effected at the adjusted tax rate, and adjusted for tax-effected restructuring charges and other items.
 
Adjusted net income per common share, assuming dilution (adjusted EPS) refers to adjusted net income divided by weighted average number of common shares outstanding, assuming dilution.
 
We believe that adjusted operating margin, adjusted net income, and adjusted EPS assist investors in understanding our core operating trends and comparing our results with those of our competitors.
 
Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for the cash contributions related to the termination of our U.S. pension plan. We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.
 
The following reconciliations are provided in accordance with Regulations G and S-K and reconcile our non-GAAP financial measures with the most directly comparable GAAP financial measures.
 
       

A-5

 
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL MEASURES
(In millions, except % and per share amounts)
 
(UNAUDITED)
Three Months Ended
 
Mar. 30, 2019 Mar. 31, 2018
             
Reconciliation from GAAP to Non-GAAP operating margins:
 
Net sales $ 1,740.1       $ 1,776.4  
(Loss) income before taxes     $ (284.4 )     $ 159.1  
(Loss) income before taxes as a percentage of net sales       (16.3 %)       9.0 %
Adjustments:
Interest expense $ 19.5 $ 13.2
Other non-operating expense   446.5         3.3  
Operating income before interest expense, other non-operating expense, and taxes     $ 181.6       $ 175.6  
Operating margins       10.4 %       9.9 %
 
(Loss) income before taxes $ (284.4 ) $ 159.1
Adjustments:
Restructuring charges:
Severance and related costs 10.4 4.3
Asset impairment and lease cancellation charges 0.3 8.4
Other restructuring-related charge --- 0.5
Net gain on sales of assets (3.2 ) (0.4 )
Interest expense 19.5 13.2
Other non-operating expense   446.5         3.3  
Adjusted operating income before interest expense, other non-operating expense,
and taxes (non-GAAP)     $ 189.1       $ 188.4  
Adjusted operating margins (non-GAAP)       10.9 %       10.6 %
 
Reconciliation from GAAP to Non-GAAP net income:
As reported net (loss) income $ (146.9 ) $ 125.2
Adjustments:
Restructuring charges and other items(1) 7.5 12.8
Pension plan settlements and related charges 446.9 0.5
Tax benefit from pension plan settlements and related charges (179.8 ) ---
Tax effect on pre-tax adjustments and impact of adjusted tax rate       (1.1 )       (9.8 )
Adjusted net income (non-GAAP)     $ 126.6       $ 128.7  
 
       

A-5

(continued)

 
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL MEASURES
(In millions, except % and per share amounts)
 
(UNAUDITED)
Three Months Ended
 
Mar. 30, 2019 Mar. 31, 2018
             
 
Reconciliation from GAAP to Non-GAAP net income per common share:
As reported net (loss) income per common share, assuming dilution $ (1.74 ) $ 1.40
Adjustments per common share, net of tax:(2)
Restructuring charges and other items(1) 0.08 0.14
Pension plan settlements and related charges 3.13 0.01
Tax effect on pre-tax adjustments and impact of adjusted tax rate (0.01 ) (0.11 )
Effect of dilutive shares on reported net loss(3)       0.02         ---  
 
Adjusted net income per common share, assuming dilution (non-GAAP)     $ 1.48       $ 1.44  
Weighted average number of common shares outstanding, assuming dilution(3)       85.4         89.6  
 
The adjusted tax rate was 25% for the three months ended Mar. 30, 2019 and Mar. 31, 2018.
(1) Includes restructuring and related charges, and net gain on sales of assets.
(2) Adjustments are calculated using the weighted average number of common shares outstanding, assuming dilution.

(3) 2019 includes dilutive shares (additional common shares issuable under stock-based awards) because we generated net income on a non-GAAP basis.

 

 
(UNAUDITED)
Three Months Ended
 
Mar. 30, 2019 Mar. 31, 2018
             
Reconciliation of free cash flow:
Net cash provided by operating activities $ 35.4 $ 16.0
Purchases of property, plant and equipment (41.8 ) (35.6 )
Purchases of software and other deferred charges (5.5 ) (7.3 )
Proceeds from sales of property, plant and equipment 7.3 6.9
Proceeds from insurance and sales (purchases) of investments, net 4.5 0.3
Pension plan contribution related to plan termination       7.4         ---  
Free cash flow (non-GAAP)     $ 7.3       $ (19.7 )
 
             

A-6

 
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions, except %)
(UNAUDITED)
 
First Quarter Ended
 
NET SALES OPERATING INCOME (LOSS) OPERATING MARGINS
  2019     2018  

2019 (1)

 

   

2018 (2)

 

2019     2018  
 
Label and Graphic Materials $ 1,178.3 $ 1,218.2 $ 139.5 $ 149.7 11.8 % 12.3 %
Retail Branding and Information Solutions 398.3 386.0 51.4 34.7 12.9 % 9.0 %
Industrial and Healthcare Materials 163.5 172.2 13.6 13.0 8.3 % 7.5 %
Corporate Expense   N/A     N/A   (22.9 )     (21.8 ) N/A     N/A  
TOTAL FROM OPERATIONS $ 1,740.1   $ 1,776.4 $ 181.6     $ 175.6   10.4 %   9.9 %
 

(1)

 

Operating income for the first quarter of 2019 includes severance and related costs of $10.4 and lease cancellation charges of $.3, partially offset by gain on sales of assets of $3.2. Of the total $7.5, the Label and Graphic Materials segment recorded $7.6, the Retail Branding and Information Solutions segment recorded ($2), and the Industrial and Healthcare Materials segment recorded $1.9.

 

(2)

Operating income for the first quarter of 2018 includes severance and related costs of $4.3, asset impairment and lease cancellation charges of $8.4, and other restructuring-related charge of $.5, partially offset by net gain on sales of assets of $.4. Of the total $12.8, the Label and Graphic Materials segment recorded $8.1 and the Retail Branding and Information Solutions segment recorded $4.7.

 
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
       
First Quarter Ended
OPERATING INCOME OPERATING MARGINS
  2019     2018   2019   2018  

Label and Graphic Materials

Operating income and margins, as reported $ 139.5 $ 149.7 11.8 % 12.3 %
Adjustments:
Restructuring charges:
Severance and related costs 8.0 0.6 0.7 % 0.1 %
Asset impairment and lease cancellation charges 0.3 6.9 --- 0.6 %
Other restructuring-related charge --- 0.5 --- ---
(Gain) loss on sales of assets   (0.7 )   0.1   ---   ---  
Adjusted operating income and margins (non-GAAP) $ 147.1   $ 157.8   12.5 % 13.0 %
 

Retail Branding and Information Solutions

Operating income and margins, as reported $ 51.4 $ 34.7 12.9 % 9.0 %
Adjustments:
Restructuring charges:
Severance and related costs 0.5 3.7 0.1 % 0.9 %
Asset impairment and lease cancellation charges --- 1.5 --- 0.4 %
Gain on sales of assets   (2.5 )   (0.5 ) (0.6 %) (0.1 %)
Adjusted operating income and margins (non-GAAP) $ 49.4   $ 39.4   12.4 % 10.2 %
 

Industrial and Healthcare Materials

Operating income and margins, as reported $ 13.6 $ 13.0 8.3 % 7.5 %
Adjustments:
Restructuring charges:
Severance and related costs   1.9     ---   1.2 % ---  
Adjusted operating income and margins (non-GAAP) $ 15.5   $ 13.0   9.5 % 7.5 %
 
               

A-7

 
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(UNAUDITED)
 
First Quarter 2019
      Total

Company

    Label and Graphic Materials     Retail Branding and Information Solutions     Industrial and Healthcare Materials
Reconciliation from GAAP to Non-GAAP sales change
Reported net sales change (2.0 %) (3.3 %) 3.2 % (5.1 %)
Reclassification of sales between segments (0.2 %) 0.6 %
Foreign currency translation     4.4 %     4.8 %     3.2 %     4.1 %
Sales change ex. currency (non-GAAP)(1) 2.4 % 1.4 % 7.0 % (1.0 %)
Acquisitions     ---       ---       ---       ---  
Organic sales change (non-GAAP)     2.4 %     1.4 %     7.0 %     (1.0 %)
 

(1) Totals may not sum due to rounding

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20190424005351/en/