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Is a Beat in Store for Avery Dennison's (AVY) Q2 Earnings?

Zacks Equity Research

Avery Dennison Corporation AVY is scheduled to report second-quarter 2019 financial numbers before the opening bell on Jul 23.

The company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 2.11%.

Further, the Zacks Consensus Estimate for the June-end quarter’s earnings per share is pegged at $1.68, indicating year-over-year growth of around 1.20%. The Zacks Consensus Estimate for total sales of $1.83 billion represents year-over-year decline of 1.13%. Notably, the Zacks Consensus Estimate remained unchanged, over the past 30 days.

Let’s see how things are shaping up prior to this announcement.

Avery Dennison Corporation Price and EPS Surprise

Avery Dennison Corporation Price and EPS Surprise

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

Earnings Whispers

Our proven model shows that Avery Dennison is likely to beat estimates in the second quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Earnings ESP for Avery Dennison is +0.90%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Avery Dennison currently carries a Zacks Rank of 2, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

It should be noted that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Factors to Consider

The company is likely to witness improved results in the quarter to be reported, backed by acquisitions, organic growth and solid presence in emerging markets. Further, Avery Dennison’s pricing actions to combat raw-material inflation, restructuring activities and execution of strategies will likely result in higher savings and earnings in the quarter.

The company’s Industrial and Healthcare Materials (IHM) segment will benefit from the Yongle, Finesse and Mactac acquisitions in the quarter under review. However, prevalent softness in the China automotive market will be a deterring factor. The Zacks Consensus Estimate for the segment’s second-quarter sales is projected to be down 1.7% year over year to $177 million. The segment’s income is expected to be up 6.4% year on year to $17.8 million.

The Zacks Consensus Estimate for the Label and Graphic Materials (LGM) segment’s sales is $1,254 million for the second quarter, likely to be marginally down from the year-ago quarter’s $1,257 million. The segment’s performance will be aided by growth in emerging markets, focus on high-value categories (including specialty labels), as well as contributions from productivity initiatives. Furthermore, Avery Dennison’s completion of restructuring actions associated with the consolidation of the European footprint of its LGM segment will drive higher returns for the segment in the soon-to-be-reported quarter. The Zacks Consensus Estimate for the segment’s income is $166 million, indicating year-over-year contraction of 4%.

The Zacks Consensus Estimate for the Retail Branding and Information Solutions segment’s second-quarter sales is $425 million, reflecting 2% improvement from the prior-year quarter's $417 million. The Zacks Consensus Estimate for the segment’s income is projected to increase 11.3% year over year to $52 million. This apart, Avery Dennison will benefit from its faster growing high-value product categories, such as specialty labels and Radio-frequency identification (RFID).

Nonetheless, unfavorable foreign currency-translation impact will affect Avery Dennison’s performance in the April-June quarter.

Avery Dennison’s shares have appreciated 13.2% in the past year, outperforming the industry’s growth of 4.9%.

 


Other Stocks to Consider

Here are few companies that you may want to consider, as our model shows these too have the right combination of elements to post an earnings beat this quarter:

Sealed Air Corporation SEE has an Earnings ESP of +1.34% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

AptarGroup, Inc. ATR, another Zacks #2 Ranked stock, has an Earnings ESP of +0.56%.

Terex Corporation TEX has an Earnings ESP of +0.82% and carries a Zacks Rank #3, currently.

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