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Avery Dennison (AVY) Q4 Earnings Beat, Sales Lag Estimates

Zacks Equity Research

Avery Dennison Corporation AVY reported adjusted earnings of $1.52 per share in fourth-quarter 2018, surpassing the Zacks Consensus Estimate of $1.50. The figure also increased around 14% year over year.


Including one-time items, the company reported earnings per share of $1.11 against the year-ago quarter’s loss per share of 66 cents.


Total revenues rose 2% to $1.77 billion from $1.74 billion recorded in the year-earlier quarter. However, the top line failed to match the Zacks Consensus Estimate of $1.78 billion. Organic sales growth was 4.8% in the reported quarter.


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

Cost of sales in the quarter went up 2% year over year to $1.3 billion. Gross profit inched up 1% year over year to $472 million, while gross margin contracted 10 basis points (bps) to 26.7%.


Marketing, general and administrative expenses came in at $275 million compared with $281 million reported in the year-ago quarter. Adjusted operating profit advanced 7% year over year to $197 million. Adjusted operating margin expanded 50 bps on a year-over-year basis to 11.1%.


Segmental Performance


Revenues from the Label and Graphic Materials segment climbed around 2% year over year to $1,181 million. On an organic basis, sales grew 4.7%. Adjusted operating profit improved 5% to $152 million from the prior-year quarter.


Revenues from the Retail Branding and Information Solutions segment went up 4% to $412 million, from $396 million recorded in the year-ago quarter. On an organic basis, sales were up 7%. The segment’s adjusted operating income improved 5% to $50 million.


The Industrial and Healthcare Materials segment reported net sales of $175 million, dipping 2% from the prior-year quarter. The segment reported adjusted operating income of $17 million compared with $14 million recorded in the year-ago quarter.


Financial Updates


Avery Dennison had cash and cash equivalents of $232 million at the end of fiscal 2018, up from $224 million reported at the end of the prior fiscal. The company generated $458 million in cash from operating activities in fiscal 2018, compared with $646 million recorded in the last fiscal.


During fiscal 2018, Avery Dennison repurchased 4 million shares for a total cost of $393 million. During the fiscal 2018, the company returned $568 million in cash to shareholders through a combination of share repurchases and dividends, up from $285 million in the prior fiscal.


Avery Dennison’s long-term debt increased to $1,772 million as of Dec 31, 2018, compared with $1,316 million as of Dec 31, 2017.


Fiscal 2018 Performance


Adjusted earnings per share for fiscal 2018 came in at $6.06, an improvement of 21% from the prior year. Earnings surpassed the Zacks Consensus Estimate of $6.04 and came within the management guidance of earnings per share of $5.95-$6.10. With this performance, the company delivered the seventh consecutive year of strong top-line growth, margin expansion, and double-digit adjusted EPS growth. Including one-time items, earnings in the fiscal stood at $5.28, up 69% year over year.


Fiscal 2018 revenues were at $7.16 billion, reflecting year-over-year improvement of 8%. However, revenues missed the Zacks Consensus Estimate of $7.17 billion. Organic sales growth was 5.5% during the year.


Cost-Reduction Activities


Avery Dennison realized approximately $31 million in pre-tax savings from restructuring in fiscal 2018. The company incurred pre-tax restructuring charges of approximately $74 million in fiscal 2018, the majority of which represents cash charges.


U.S. Pension Plan Termination


Avery Dennison has begun the termination process of the Avery Dennison Pension Plan — a tax-qualified U.S. defined benefit plan. The company contributed $200 million to the plan during the third quarter using commercial paper borrowings. The impact of actions connected with the plan termination and other pension settlements impacted reported earnings per share by 49 cents (net of tax) in 2018. It expects to contribute an additional $50 to $60 million during 2019, to fully fund the plan and complete the transaction.  The completion of the plan termination is expected to affect reported earnings per share by approximately $3.55 during the first quarter of 2019.




For 2019, Avery Dennison initiated adjusted earnings per share guidance of $6.45-$6.70, reflecting growth of 6-11% over the adjusted earnings of $6.06 earned in fiscal 2018. Including the impact of the pension settlement charge, earnings per share guidance is at $2.70-$2.95.


Share Price Performance



Over the past year, Avery Dennison stock has lost 15.8% compared with the industry’s decline of 15.7%.


Zacks Rank & Key Picks


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


Some better-ranked stocks in the sector include Alarm.com Holdings, Inc. ALRM, Cintas Corporation CTAS and Enersys ENS. While Alarm.com Holdings sports a Zacks Rank #1 (Strong Buy), Cintas and Enersys carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.


Alarm.com has a long-term earnings growth rate of 17%. The stock has appreciated 67% over the past year.


Cintas has a long-term earnings growth rate of 12%. The company’s shares have gained around 10% over the past year.


Enersys has a long-term earnings growth rate of 10%. Its shares have gained 18% over the past year.


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