Avery Dennison's preliminary, unaudited Q3 net income down 36.5% year-over-year to US$37M, reflecting results of discontinued operations; net sales up 4% to US$1.5B

Kendall Sinclair

PASADENA, California , October 25, 2013 (press release) –

3Q13 Reported EPS (including discontinued operations) of $0.37
- Adjusted EPS (non-GAAP, continuing operations) of $0.69
3Q13 Net sales grew approximately 4 percent to $1.50 billion
- Net sales up approximately 4 percent on organic basis
Returned $308 million of cash to shareholders through end of 3Q, including the repurchase of 5.2 million shares for $224 million
OCP and DES sale completed July 1; net proceeds of approximately $400 million
Raised adjusted 2013 EPS guidance to $2.60 to $2.70, an increase of 33% to 38% compared to prior year

Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its third quarter ended September 28, 2013. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, the discussion of the company’s results is focused on its continuing operations, and comparisons are to the same period in the prior year. Results reflect classification of Office and Consumer Products (OCP) and Designed and Engineered Solutions (DES) businesses as discontinued operations.

“I’m happy to once again report strong double-digit adjusted earnings growth for the quarter,” said Dean Scarborough, Avery Dennison chairman, president and CEO. “Both of our core businesses are delivering solid sales growth, as well as outstanding operating margin expansion.”

“With another strong quarter behind us, we increased our earnings guidance for the year, and we remain committed to our disciplined capital allocation strategy,” Scarborough added. “We will return the vast majority of the net proceeds from our recent divestitures to shareholders, along with the solid free cash flow generated by our ongoing business. During the first nine months, we distributed over $300 million through dividends and the repurchase of 5.2 million shares.”

For more details on the company’s results, see the summary table accompanying this news release, as well as the supplemental presentation materials, “Third Quarter 2013 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.

Third Quarter 2013 Results by Segment

All references to sales reflect comparisons on an organic basis, which exclude the estimated impact of currency translation, product line exits, acquisitions and divestitures. Adjusted operating margin refers to earnings before interest expense and taxes, excluding restructuring costs and other items, as a percentage of sales.

Pressure-sensitive Materials (PSM)

PSM segment sales increased approximately 4 percent. Within the segment, Label and Packaging Materials sales increased low single digits. Combined sales for Graphics, Reflective, and Performance Tapes increased mid-single digits.
Operating margin improved 220 basis points to 10.2 percent as the benefit of productivity initiatives, lower restructuring costs, and higher volume more than offset the impact of changes in product mix. Adjusted operating margin improved 120 basis points.
Retail Branding and Information Solutions (RBIS)

RBIS segment sales increased approximately 4 percent driven by increased demand from European retailers and brands.
Operating margin declined 20 basis points to 3.2 percent due to higher restructuring costs. Adjusted operating margin improved 100 basis points as the benefit of productivity initiatives and higher volume more than offset higher employee-related expenses.
Other

Share Repurchases

The company repurchased 5.2 million shares through the end of the third quarter at an aggregate cost of $224 million.

Discontinued Operations

On July 1, 2013, the company completed the sale of its OCP and DES businesses to CCL Industries Inc. Net proceeds from the sale are expected to be approximately $400 million, which the company intends to use primarily to repurchase shares. Net loss per share from discontinued operations was $(0.25), which includes loss on sale.

Income Taxes

The third quarter effective tax rate was 17 percent, reflecting timing of certain discrete events and planning. The year-to-date adjusted tax rate was 33 percent.

Cost Reduction Actions

In the third quarter, the company continued to execute its plans to reduce fixed costs through restructuring actions. The company realized approximately $110 million in annualized savings from the program initiated in the first half of 2012. To implement these actions, the company incurred restructuring costs, net of gain on sale of assets, of approximately $20 million in the first nine months of 2013; in the fourth quarter, costs are expected to be offset by gains.

Outlook

In its supplemental presentation materials, “Third Quarter 2013 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2013 financial results. Based on the factors listed and other assumptions, the company now expects 2013 earnings per share from continuing operations of $2.40 to $2.50. Excluding an estimated $0.20 per share for restructuring costs and other items, net of gain on sale of assets, the company expects adjusted (non-GAAP) earnings per share from continuing operations of $2.60 to $2.70. The company continues to expect free cash flow from continuing operations in the range of $275 million to $315 million.

Note: Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.

About Avery Dennison

Avery Dennison (NYSE:AVY) is a global leader in labeling and packaging materials and solutions. The company’s applications and technologies are an integral part of products used in every major market and industry. With operations in more than 50 countries and more than 26,000 employees worldwide, Avery Dennison serves customers with insights and innovations that help make brands more inspiring and the world more intelligent. Headquartered in Pasadena, California, the company reported sales from continuing operations of $6 billion in 2012. Learn more at www.averydennison.com.

AVERY DENNISON
PRELIMINARY CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)

		(UNAUDITED)

		Three Months Ended					Nine Months Ended

		Sep. 28, 2013			Sep. 29, 2012		Sep. 28, 2013			Sep. 29, 2012


Net sales	$	1,504.9		$	1,447.0	$	4,556.1		$	4,380.4

Cost of products sold		1,102.7			1,066.0		3,334.7			3,234.2


Gross profit		402.2			381.0		1,221.4			1,146.2

Marketing, general & administrative expense		285.7			286.6		880.1			860.2

Interest expense		16.0			18.0		43.0			54.9

Other expense, net(1)		25.7			21.9		32.9			40.7


Income from continuing operations before taxes		74.8			54.5		265.4			190.4

Provision for income taxes		12.8			18.6		65.8			60.8


Income from continuing operations		62.0			35.9		199.6			129.6

(Loss) income from discontinued operations, net of tax (including gain before taxes on disposal of $52.2 and provision for taxes of $78.4)		(25.0	)		22.4		(36.0	)		36.8


Net income	$	37.0		$	58.3	$	163.6		$	166.4