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Avery Dennison (AVY) Q1 Earnings Top Estimates, Hikes '21 View

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·5 min read
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Avery Dennison Corporation AVY reported first-quarter 2021 adjusted earnings of $2.40 per share, surpassing the Zacks Consensus Estimate of $2.01 by a margin of 19%. The bottom line also improved 45% year over year driven by significant margin expansion in all of its segments and its cost-saving actions.

Including one-time items, the company reported earnings per share of $2.50 compared with $1.60 in the year-ago quarter.

Total revenues increased 19% year over year to $2.05 billion and beat the Zacks Consensus Estimate of $1.92 billion. Sales were up 8.8% on an organic basis.

Cost of sales in the quarter improved 17.5% year over year to $1,454 million. Gross profit climbed 23% year over year to $597 million. Gross margin expanded 90 basis points year over year to 29.1% in the first quarter.

Marketing, general and administrative expenses were around $312 million compared with $281 million incurred in the year-ago quarter. Adjusted operating profit amounted to around $285 million, up 39.5% from the $204 million in the prior-year quarter. Adjusted operating margin was 13.9% in the quarter, up 210 basis points from the prior-year quarter.

Avery Dennison Corporation Price, Consensus and EPS Surprise

Avery Dennison Corporation Price, Consensus and EPS Surprise
Avery Dennison Corporation Price, Consensus and EPS Surprise

Avery Dennison Corporation price-consensus-eps-surprise-chart | Avery Dennison Corporation Quote

Segment Highlights

Revenues in the Label and Graphic Materials (LGM) segment increased 17% year over year to $1,377 million in the reported quarter. Label and Packaging Materials sales were up 7%, with strong growth witnessed in both the high value product categories and the base business. Sales rose 9% in the combined Graphics and Reflective Solutions businesses. On an organic basis, sales were up 7.6%. Adjusted operating profit increased 29% year on year to $224 million.

Revenues in the Retail Branding and Information Solutions (RBIS) segment advanced 20% year over year to $483 million. On an organic basis, sales were up 9.3% reflecting strong growth in both the high value categories and the base business. The segment’s adjusted operating income soared 82% year over year to $62 million.

Net sales in the Industrial and Healthcare Materials (IHM) segment totaled $192 million, up 30% from $148 million in the prior-year quarter. This reflects a 20% increase in industrial categories and a low-single digit decline in healthcare categories. The segment reported adjusted operating income of $23.6 million compared with the prior-year quarter’s $15.4 million.

Financial Updates

Free cash flow in the reported quarter was $182 million compared with an usage of $35.3 million in the prior-year quarter. Avery Dennison recently raised its quarterly dividend rate by 10%. The company has repurchased 0.3 million shares in the first quarter for $56 million.

Avery Dennison ended the first quarter with cash and cash equivalents of $328 million compared with $742 million at the end of the prior-year quarter. As of the end of first-quarter 2021, the company’s net debt to adjusted EBITDA ratio was 1.6, well below the company’s long-term target of 2.3-2.6.

Guidance

Backed by strong performance in the first quarter and a higher organic growth assumption for the balance of the year, Avery Dennison now expects earnings per share between $8.40 to $8.80 in 2021 compared with the prior guidance of $7.65 to $8.05. The mid-point of the guidance range reflects year-over-year growth of 21%.

Price Performance

Shares of Avery Dennison have gained 78.1% in the past year, compared with the industry’s rally of 66%.

Zacks Rank and Stocks to Consider

Avery Dennison currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include Dover Corporation DOV, Caterpillar Inc. CAT and Pentair plc PNR, each carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dover has a projected earnings growth rate of 21.8% for 2021. Over the past year, the company’s shares have gained 56%.

Caterpillar has an estimated earnings growth rate of 25.7% for the ongoing year. The company’s shares have rallied 99% in the past year.

Pentair has an expected earnings growth rate of 11.6% for 2021. The stock has surged 86% in a year’s time.

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