Avery Dennison Reports Q4 Results, Annual Sales Grow 11% to $4.2 Billion
Wednesday, January 29, 2003
PASADENA, Calif.--Jan. 28, 2003-- Avery Dennison today reported fourth quarter 2002 diluted earnings per share of $0.56, or $0.68 per share before a restructuring and asset impairment charge, which includes costs associated with the integration of Jackstadt. This compares with earnings of $0.59 per share for the fourth quarter a year ago, reflecting an increase of 15 percent, excluding the charge. 2002 year-end earnings per share were $2.59, or $2.81 per share excluding the charge, which compares with $2.47 per share in 2001. "Avery Dennison delivered strong results for the fourth quarter, even though weak economic conditions continued to present a challenging operating environment," said Philip M. Neal, chairman and chief executive officer of Avery Dennison. "We ended 2002 with solid performance, highlighted by a return to double-digit earnings growth, the completion of three acquisitions, the divestiture of several small businesses, and the introduction of a major new program designed to accelerate top-line growth." "During 2002, our company-wide Six Sigma productivity improvement program continued to reduce costs, while our major lines of business successfully launched new products and applications in a variety of consumer and industrial markets." Financial highlights for the fourth quarter: * Earnings per share, on a diluted basis, were $0.56, compared with the prior year's fourth quarter earnings of $0.59 per share. Excluding the restructuring and asset impairment charge, earnings were $0.68 per share in the fourth quarter of 2002, reflecting growth of 15 percent over the prior-year fourth quarter. * Net income was $55.5 million, compared with $58.1 million in the prior year quarter. Excluding the restructuring and asset impairment charge, net income was $67.4 million in the fourth quarter of 2002, reflecting growth of 16 percent over the same quarter a year ago. * Reported sales grew 21 percent to $1.1 billion, compared with $912.6 million a year ago. Excluding the impact of currency exchange rates, acquisitions and divestitures, sales increased by approximately 6 percent over the prior-year fourth quarter. * Unit volumes grew by an estimated 7.5 to 8.5 percent in the quarter, excluding the impact of acquisitions and divestitures. * Operating margin (earnings before interest and taxes as a percent of sales) was 8.3 percent in the quarter. Excluding the effect of the restructuring and asset impairment charge, as well as the estimated impact of acquisitions, operating margin was 11.1 percent, an increase of 90 basis points relative to the same period last year. * Working capital as a percentage of sales improved to 5.1 percent. * The year-to-date tax rate remained unchanged from the preceding quarter at 29.5 percent. As previously announced, the Company took a charge of $16.9 million in the fourth quarter of 2002 for severance and asset impairment costs, related to the integration of the Jackstadt acquisition, the closure of an office products manufacturing facility which was announced in October, and other cost reduction actions. Avery Dennison said that new accounting rules and the timing of cost reduction actions require the Company to spread total integration-related restructuring charges over three quarters. As a result, the Company expects to take a charge of approximately $20 million in the first quarter of 2004 for the balance of the severance costs related to the Jackstadt acquisition. The Company reported that the integration of Jackstadt operations is proceeding better than originally expected. The Company said that it expects the acquisition to have an accretive impact on earnings of $0.08 to $0.10 per share in 2003. Avery Dennison said that it rebalanced its short-term and long-term debt portfolio in mid-January, 2003, by issuing $400 million of debt, using the proceeds to pay down short-term debt incurred to finance acquisitions made in 2002. Operations Review The Pressure-sensitive Adhesives and Materials sector achieved strong growth over the fourth quarter of 2001 with reported sales for the sector of $689 million, an increase of 28 percent. Excluding the impact of acquisitions, divestitures and currency exchange rates, sales grew approximately 8 percent. The worldwide roll materials business and the specialty tapes business achieved solid growth in the fourth quarter of 2002, as did the international operations of the graphics and reflective materials businesses. Sales in the U.S. graphics and reflective materials businesses were flat compared with the prior year. Operating margin for the sector was 6.5 percent in the quarter. Excluding restructuring and asset impairment charges, last year's gain on a divestiture, and the estimated impact of the Jackstadt acquisition, sector operating margin increased 210 basis points over the prior-year fourth quarter to 9.5 percent. The Consumer and Converted Products sector reported solid sales growth compared with the fourth quarter of 2001, with reported sales for the sector of $461 million, an increase of 9 percent. Excluding the impact of acquisitions, divestitures and currency exchange rates, sales grew approximately 2 percent. The North American office products business posted solid increases in sales. The Retail Information Services business and the Industrial and Automotive Products business achieved strong sales. Sales were flat in the European Office Products business compared with the prior-year fourth quarter. Operating margin for the sector was 11.7 percent in the fourth quarter. Excluding restructuring and asset impairment charges and the estimated impact of the RVL and L&E acquisitions, sector operating margin increased 10 basis points over the prior-year fourth quarter to 13.7 percent. The Company completed the previously announced acquisitions of RVL and L&E during the fourth quarter, providing expanded manufacturing capabilities and enhanced marketing and brand management expertise for the Company's growing Retail Information Services business. Integration of the operations of the two companies is in progress, which will enable Avery Dennison to offer global, full-service brand identification and data management systems to its retail and apparel customers. The Company stated that it expects the acquisitions to have an accretive impact on earnings of $0.04 to $0.08 per share in 2003. Financial highlights for the year: * Earnings per share, on a diluted basis, were $2.59 compared with $2.47 a year ago. Excluding the impact of restructuring and asset impairment charges, annual earnings were $2.81 per share in 2002, reflecting an increase of 14 percent compared with 2001. * Net income was $257.2 million compared with $243.2 million in 2001. Excluding restructuring and asset impairment charges, annual net income was $279.8 million, an increase of 15 percent over the prior year. * Reported sales grew 11 percent to $4.2 billion. Excluding the impact of currency exchange rates, acquisitions and divestitures, sales increased by approximately 5 percent compared with 2001. * Unit volume increased by an estimated 7 to 8 percent over the prior year, excluding the impact of acquisitions and divestitures. * Operating margin was 9.7 percent for the year. Excluding the effect of restructuring and asset impairment charges, as well as the initial negative impact of the acquisitions completed during the year, operating margin was an estimated 11.4 percent, an increase of 40 basis points over the prior year. * Cash flow from operations for the year increased by 39 percent over the prior year to $523 million. * Return on shareholders' equity was 25.7 percent in 2002, compared with 27.4 percent in 2001. * Return on total capital was 15.8 percent, compared with 16.2 percent a year ago. Outlook Avery Dennison said that it expects earnings for the first quarter of 2003 to be in the range of $0.70 to $0.74 per share, with an estimate of annual earnings for 2003 in the range of $3.00 to $3.25 per share. The Company stated that its estimate for the first quarter assumes reported sales growth in the range of 22 to 26 percent, and that the full-year earnings expectation assumes reported sales growth in the range of 14 to 18 percent, augmented by the effects of acquisitions and currency exchange rates. The Company estimates that operating margin for the first quarter will be in the range of 9.9 to 10.3 percent, while operating margin for the full year will be in the range of 10 to 10.5 percent. The Company's estimates reflect an expectation of current uncertain economic conditions, improvement in underlying operations, the benefit of acquisitions completed during 2002, and the positive effect of anticipated currency exchange rates. These improvements are partially offset by increases in spending associated with new top-line growth initiatives, pension expense, medical and other insurance costs, and interest expense, as well as transition costs associated with the start-up of two new coating lines. "An exciting, new growth acceleration initiative is taking root throughout Avery Dennison. We intend to increase the pace at which we deliver successful new products to market, and as a result, we expect to introduce a variety of innovative products, unique applications and new or expanded business lines in the future," said Neal. "While some weakness still exists in a number of markets due to economic conditions and we are being relatively cautious with our short-term outlook, Avery Dennison has excellent long-term opportunities to build and sustain growth." Avery Dennison is a global leader in pressure-sensitive technology and innovative self-adhesive solutions for consumer products and label materials. Based in Pasadena, Calif., the Company had 2002 sales of $4.2 billion. Avery Dennison develops, manufactures and markets a wide range of products for consumer and industrial markets, including Avery-brand office products, Fasson-brand self-adhesive materials, peel-and-stick postage stamps, reflective highway safety products, automated retail tag and labeling systems, and specialty tapes and chemicals.