Avery Dennison Corporation AVY is benefiting from robust demand for consumer-packaged goods and e-commerce growth. Strong demand for labeling technology coupled with solid growth in high-value products, intelligent labels, Radio-frequency identification (RFID) and core apparel business will boost growth. Also, anticipated benefits from pricing and re-engineering actions will continue to stoke growth. However, cost inflation and supply chain disruptions will likely dent the company’s performance in the near term.
Positive Earnings Surprise History: Avery Dennison, a Zacks Rank #3 (Hold) stock, has a trailing four-quarter earnings surprise of 5.75%, on average.
Solid Growth Expectations: The company’s earnings estimate for the current year is pegged at $9.93, suggesting year-over-year growth of around 11.4%.
Upward Estimate Revision: Current-year figures look promising, with five estimates moving higher in the past 60 days compared with no downward revisions. Earnings estimates for 2022 have gone up 2.21% over the same time frame.
Raised View: In second-quarter 2022 earnings call, Avery Dennison hiked financial guidance for the current year. Adjusted earnings per share (EPS) for 2022 are expected in the band of $9.70-$10.00, up from the prior guidance of $9.45-$9.85. The company reported an adjusted EPS of $8.91 in 2021. It expects organic sales growth of 15-17%, driven by higher volume and the impact of higher prices.
Other Driving Factors
Labeling non-durable consumer goods, like food, beverage, home and personal care products, accounts for around 40% of Avery Dennison’s revenues. The company is witnessing soaring demand for these products amid the pandemic. Over the long run, increasing demand from emerging markets owing to the rising middle class, the consequent surge in demand for packaged goods and a shift in the labeling technology to pressure-sensitive materials will fuel the company’s growth. Apart from these factors, around 15% of its revenues are tied to logistics and shipping, which will be aided by a rise in e-commerce activities.
The Label and Graphic Materials segment is gaining from strong demand for consumer-packaged goods and e-commerce trends. In the current year, the segment is well poised to benefit from solid top-line growth and margin expansion, volume improvement, focus on growing high-value categories led by specialty labels and contributions from productivity initiatives.
Avery Dennison’s Retail Branding and Information Solutions (RBIS) segment is gaining from solid margin expansions, driven by strength in high-value categories and the base business. The segment is witnessing strong volume growth in Intelligent Labels, RFID and the core apparel label business, with particular strength and performance in premium channels and continued double-digit growth in external embellishments.
The segment’s Intelligent Labels business expects long-term annual growth of 15-20%, with solid growth in the apparel business. Apart from apparel, the RBIS segment is recording growth in new applications within the food, logistics and home goods.
Avery Dennison has undertaken several pricing and re-engineering actions to mitigate inflationary cost pressure. The company has also announced additional price increases in most of its businesses worldwide. These factors will support the company’s margins.
Uncertainties related to the pandemic persistently affect its performance until the situation stabilizes. Strong demand and supply constraints are likely to push raw material, labor and freight costs. These factors might dent the company’s margins in second-quarter 2022.
Avery Dennison Corporation Price and Consensus
Avery Dennison Corporation price-consensus-chart | Avery Dennison Corporation Quote
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Applied Industrial Technologies, Inc. AIT, Greif Inc. GEF and Sonoco Products Co. SON. While AIT sports a Zacks Rank #1 (Strong Buy), GEF and SON carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Industrial has an estimated earnings growth rate of 10.9% for fiscal 2023. In the past 60 days, the Zacks Consensus Estimate for fiscal 2023 earnings has been revised upward by 6%.
Applied Industrial pulled off a trailing four-quarter earnings surprise of 22.8%, on average. AIT’s shares have soared 32.2% in a year.
Greif has an estimated earnings growth rate of 37% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 17%.
Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. GEF’s shares have risen 18.6% in the past year.
Sonoco has an expected earnings growth rate of 78.3% for 2022. The Zacks Consensus Estimate for the current year’s earnings moved up 18% in the past 60 days.
Sonoco has a trailing four-quarter earnings surprise of 4.06%, on average. SON’s shares have moved up 1.7% in the past year.
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