Avery Dennison Reports Q3: Sales Grow 15.3% to Reach Record $1.1 Billion
Wednesday, October 23, 2002
Company Posts Diluted Earnings Per Share of $0.64, Including a Non-Cash Charge to Earnings; Earnings Per Share Are $0.74 Excluding Impact of the Charge PASADENA, Calif.--Oct. 22, 2002-- Avery Dennison Corporation today reported third quarter diluted earnings per share of $0.64, including a non-cash charge to earnings, compared with $0.63 for the third quarter a year ago. Excluding the impact of the $15.2 million non-cash, pretax charge, earnings per share were $0.74, reflecting an increase of 17.5 percent over the prior-year third quarter. "Our earnings and sales in the third quarter grew year-over-year at double-digit rates, excluding the non-cash charge," said Philip M. Neal, chairman and chief executive officer of Avery Dennison. "Our core pressure-sensitive materials business achieved outstanding sales growth, which demonstrates the effectiveness of our strategies to execute top-line growth. Our businesses performed well and we met our financial projections, despite challenging worldwide economic conditions. "We are enthusiastic about the long-term growth opportunities provided by the recently completed acquisition of Jackstadt, which is currently being integrated into our materials business ahead of plan in all key respects, including revenue retention where we are achieving rates of approximately 95 percent," said Neal. Key results for the third quarter of 2002 include: * Earnings per share, on a diluted basis, were $0.64, compared with $0.63 per share for the same quarter a year ago. A pretax charge to earnings of $15.2 million, or $0.10 per share, was posted in the quarter. This charge is related to the planned disposition of fixed assets and lease cancellation costs associated with the integration of Jackstadt operations and actions related to other businesses. Excluding the charge, earnings were $0.74 per share, an increase of 17.5 percent over the same quarter a year ago. During the quarter, the negative impact on earnings from the Jackstadt acquisition of approximately $0.05 per share was partially offset by a $0.02 per share benefit from a year-to-date tax rate adjustment and a positive impact from currency exchange rates of $0.02 per share. * Net income was $63.1 million, compared with $61.7 million in the third quarter of 2001. Excluding the charge to earnings in the third quarter of 2002, net income was $73.8 million, reflecting an increase of 19.6 percent over the year-ago third quarter. * Reported sales grew 15.3 percent to $1.1 billion for the third quarter of 2002 compared with $967 million in the third quarter of 2001. Excluding the impact of currency exchange rates, acquisitions and divestitures, core sales increased approximately 5 percent in the third quarter compared with the same quarter a year ago. * Operating margin increased approximately 80 basis points over the third quarter of 2001, excluding the impact from the integration of Jackstadt and the third-quarter charge. * The year-to-date tax rate declined from 30.5 percent in the previous quarter to 29.5 percent, due to structural and operational changes, the impact of acquisitions, and the changing geographic mix of the Company's income. This tax rate is expected to be sustainable. Key results for the first nine months of 2002 include: * Earnings per share, on a diluted basis, were $2.03, compared with $1.88 for the same period in 2001. Excluding the impact of the charge in the third quarter, earnings per share were $2.14, reflecting an increase of 13.8 percent over the first nine months in 2001. * Net income grew to $201.7 million, compared with $185.1 million in the first nine months of 2001. Excluding the charge in the third quarter, year-to-date net income was $212.4 million, reflecting growth of 14.7 percent over the first nine months of 2001. * Reported sales expanded 7.3 percent to $3.1 billion, compared with $2.9 billion in the first nine months of the prior year. Excluding the impact of currency exchange rates, acquisitions and divestitures, sales increased approximately 4 percent over the first nine months of 2001. * Year-to-date operating margin increased approximately 50 basis points from the prior-year level, excluding the impact from Jackstadt and the charge in the third quarter of 2002. * Returns on investment were strong, excluding the third-quarter charge, with year-to-date annualized return on shareholders' equity at 28.4 percent and year-to-date annualized return on total capital at 17.4 percent. In addition to the third-quarter charge to earnings and consistent with the Company's previous announcements, a charge of approximately $17 million will be taken in the fourth quarter of 2002 for severance costs. This is in addition to approximately $30 million in costs associated with the severance of former Jackstadt employees, which do not result in a charge to earnings. The integration-related headcount reductions total approximately 1,000 positions companywide. The Company said that it does not expect additional severance and asset disposition charges to earnings associated with the Jackstadt integration beyond the fourth quarter of 2002. Operations Review The Pressure-sensitive Adhesives and Materials sector reported strong growth over the third quarter of 2001 with reported sales for the sector of $687 million. Sales for the sector grew nearly 24 percent over the third quarter of 2001. Excluding the impact of the Jackstadt acquisition, currency exchange rates and divestitures, sales for the sector grew approximately 6.5 percent. Before the positive impact of currency exchange rates and the Jackstadt acquisition, virtually all pressure-sensitive materials operations worldwide, with the exception of European markets, achieved double-digit sales growth. The North American pressure-sensitive materials business reported strong results, due to a variety of factors, including innovative new service programs and applications, new product introductions, expanded relationships with major end-users and industry consolidation. The specialty tape business reported strong sales growth, as the business continues to introduce new applications and products for the medical and industrial markets. The strong growth in these businesses was partially offset by flat results in the worldwide graphics and reflective materials business. Operating margin for the sector, excluding the third-quarter charge, was 7.7 percent, compared with 8.6 percent for the same period a year ago. Excluding the impact of the Jackstadt acquisition and the third-quarter charge, operating margin for the sector was approximately 9.5 percent, an improvement of approximately 90 basis points over the third quarter of 2001. The Company also announced that it is making a $40 million investment in its pressure-sensitive materials manufacturing operation in Europe. Avery Dennison will expand its existing pressure-sensitive materials plant in Luxembourg with new coating and finishing equipment utilizing state-of-the-art production technology which will result in significant productivity improvement and enhanced distribution throughout Europe. The Consumer and Converted Products sector reported modest sales growth over the same quarter a year ago. Reported sales for the sector were $471 million. Sales for the sector increased 1.1 percent from the third quarter of 2001, excluding the impact of currency exchange rates and divestitures. A relatively soft back-to-school retail season in the U.S. market resulted in a modest decline in sales compared with the prior-year third quarter for the Company's office products business. The early strong order patterns that developed in the office products business during the second quarter of 2002 did not continue for the balance of the back-to-school season, reflecting soft economic conditions. In Europe, excluding the impact of currency exchange rates, sales were flat to down modestly for most businesses in the sector, consistent with weakened economic conditions in the region. Offsetting the soft office products and European operations, both the Retail Information Services business and the Automotive and Industrial Products business achieved strong sales growth. Retail Information Services, which includes the Company's worldwide ticketing business supplying tags and ticketing products to the apparel and retail industries, reported double-digit sales growth over the prior-year quarter. Automotive and Industrial Products posted growth of nearly 10 percent. Operating margin for the sector, excluding the third-quarter charge, increased 120 basis points from the prior-year third quarter. Avery Dennison said that it expects earnings, excluding the impact from the expected charge of approximately $17 million in the fourth quarter, to be in the range of $0.65 to $0.70 per share for the fourth quarter of 2002, projecting annual earnings to be in the range of $2.79 to $2.84 per share, excluding the third and fourth quarter charges. The Company said that these projections for the quarter assume the continuation of current trends, and reflect expectations for revenue growth in the range of 15 percent to 19 percent, and operating margin in the range of 10 percent to 10.5 percent, which includes the previously announced negative impact on earnings of $0.03 per share from the Jackstadt acquisition. "We are encouraged by the outlook for our businesses on a worldwide basis as we move into the final quarter of the year," said Neal. "Order patterns across our businesses and geographic markets are strong, with some uncertainty about economic conditions in Europe. We look forward to strengthening our worldwide ticketing business by completing the recently announced acquisitions of RVL Packaging and L&E Packaging, which are subject to regulatory approvals and other closing conditions. "We are committed to accelerating our growth as we enter 2003, through strategies that capitalize on our technological capabilities, product development expertise and geographic presence in major global markets," said Neal. "Teams of employees throughout the Company are focused on developing new products, and even new businesses, that fulfill immediate market needs, as well as the yet unmet needs of customers three to five years in the future."