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Avery Dennison (AVY) Q1 Earnings Beat, Sales Lag Estimates

Zacks

Avery Dennison Corporation AVY reported adjusted earnings of $1.48 per share in first-quarter 2019, surpassing the Zacks Consensus Estimate of $1.46. The figure also increased around 2.7% year over year.

Including one-time items, the company posted net loss of $1.74 per share as against the year-ago quarter’s earnings per share of $1.40.

Total revenues declined 2% year over year to $1.74 billion, missing the Zacks Consensus Estimate of $1.75 billion. Organic sales growth was 2.4% in the reported quarter.

Cost of sales in the quarter edged down 1.5% year over year to $1.3 billion. Gross profit decreased 3.7% year over year to $465 million. Gross margin slipped to 26.7% from 27.2% the prior-year quarter.

Marketing, general and administrative expenses came in at $276 million compared with $295 million reported in the year-ago quarter. Adjusted operating profit came in at $189 million compared to $188 million recorded in the prior-year quarter. Adjusted operating margin inched up to 10.9% from the year-earlier quarter’s 10.6%.

Avery Dennison Corporation Price, Consensus and EPS Surprise

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


Segmental Performance

Revenues in the Label and Graphic Materials segment declined 3.3% year over year to $1,178 million. On an organic basis, sales grew 1.4%. Adjusted operating profit decreased 6.8% year on year to $147 million.

Revenues in the Retail Branding and Information Solutions segment jumped 3.2% year over year to $398.3 million. On an organic basis, sales were up 7%. The segment’s adjusted operating income increased 25% to $49.4 million.

The Industrial and Healthcare Materials segment reported net sales of $163.5 million, dropping 5% from the prior-year quarter. The segment reported adjusted operating income of $15.5 million compared with $13.0 million recorded in the comparable quarter last year.

Financial Updates

Avery Dennison had cash and cash equivalents of $225.7 million at the end of the first quarter, up from $187.5 million reported at the end of the prior-year quarter. The company generated $35 million in cash from operating activities in the reported quarter compared with $16 million in the year-earlier period.

During the Jan-Mar quarter, Avery Dennison repurchased 0.9 million shares for a total cost of $89 million. The company’s share count decreased 0.4 million in the quarter.

Avery Dennison’s long-term debt increased to $1,760 million as of Mar 30, 2019, compared with $1,342.7 million as of Mar 31, 2018.

Cost-Reduction Activities

Avery Dennison realized approximately $5 million in pre-tax savings from restructuring in the first quarter. The company incurred pre-tax restructuring charges of approximately $11 million.

U.S. Pension Plan Termination

Avery Dennison has begun the termination process of the Avery Dennison Pension Plan (ADPP) — a tax-qualified U.S. defined benefit plan. On Mar 21, the company settled its liabilities associated with this plan. The settlement resulted in $447 million of pretax charges, partly offset by tax benefits of $180 million. The company contributed around $7 million of cash to the ADPP during the first quarter to cover costs associated with the settlement of these liabilities.

Guidance

For 2019, Avery Dennison maintained its adjusted earnings per share guidance of $6.45-$6.70. Including the impact of the pension-settlement charge, Avery Dennison raised the earnings per share guidance to $3.10-$3.35 from the prior view of $2.70-$2.95, due to lower-than-expected pension-settlement charges.

Share Price Performance

Shares of Avery Dennison has gained 5% over the past year, outperforming the industry’s growth of 3%.



Zacks Rank and Stocks to Consider

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

A few better-ranked stocks in the Industrial Products sector are DMC Global Inc. BOOM, Lawson Products, Inc. LAWS and DXP Enterprises, Inc. DXPE, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

DMC Global has an estimated earnings growth rate of 77.3% for the ongoing year. The company’s shares have soared 117%, in the past year.

Lawson Products has an impressive expected earnings growth rate of 102.5% for the current year. The stock has appreciated 35% in a year’s time.

DXP Enterprises has a projected earnings growth rate of 21.6% for 2019. The company’s shares have gained 24%, over the past year.

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