PASADENA, Calif.--July 20, 2004-- Avery Dennison Corporation today reported second quarter diluted earnings per share of $0.68, compared with $0.71 per share for the second quarter of 2003. Excluding a previously announced, acquisition-related restructuring charge in the quarter, second quarter 2004 earnings were $0.78 per share, which includes a $0.04 per share benefit from a one-time tax settlement. "Our second quarter results mark Avery Dennison's return to double-digit earnings growth from operations," said Philip M. Neal, chairman and chief executive officer of Avery Dennison. "We have achieved a number of milestones this quarter, including the completion of integration activities related to the Jackstadt acquisition. We are experiencing solid growth across the Company as economic conditions throughout our businesses and geographic markets improve substantially, with the exception of some softness in the office products business." Financial highlights for the second quarter of 2004: Earnings per share, on a diluted basis, were $0.68, compared with $0.71 per share in the same quarter a year ago. Second quarter earnings include the negative impact of $0.10 per share resulting from a restructuring charge related to the final stages of integration activities for the Jackstadt acquisition. In line with the Company's expectations, a positive impact from currency translation contributed approximately $0.01 per share to second quarter 2004 earnings. In addition, a favorable foreign tax audit settlement contributed $0.04 per share to earnings in the second quarter. Including the tax benefit, earnings per share were $0.78, before the impact of the restructuring charge, compared with $0.67 per share in the second quarter of 2003. (See below: "Reconciliation of GAAP to Non-GAAP Measures"). Net income was $68.5 million, which includes the negative effect of a pretax restructuring charge of approximately $14 million associated with the completion of integration activities for the Jackstadt acquisition, compared with $71.3 million in the second quarter of 2003. Excluding the restructuring charge, net income was $78.5 million, including the favorable tax settlement, compared with $66.8 million in the year-ago second quarter. (See below: "Reconciliation of GAAP to Non-GAAP Measures"). Reported sales from continuing operations grew 11 percent from prior-year levels, reaching $1.3 billion for the second quarter of 2004, compared with $1.2 billion in the second quarter of 2003. Approximately one-third of the revenue growth during the quarter is attributable to the positive impact of currency translation, primarily the Euro. Core unit volume grew approximately 8 percent over the prior-year second quarter, achieving the highest unit volume growth rate in six quarters. Operating margin declined 10 basis points from the second quarter of 2003, excluding the restructuring charge in the current-year quarter and positive one-time items in the prior-year quarter, reflecting lower prices, higher raw material costs and unfavorable business mix, which were largely offset by productivity gains. (See below: "Reconciliation of GAAP to Non-GAAP Measures"). Financial highlights for the first six months of 2004: Earnings per share, on a diluted basis, were $1.21, compared with $1.42 for the first half of 2003. Excluding restructuring charges, earnings per share were $1.46, including the favorable tax settlement, compared with $1.35 per share for the first six months of 2003. (See below: "Reconciliation of GAAP to Non-GAAP Measures"). Net income was $121.1 million, compared with $142.1 million for the first six months of 2003. Excluding restructuring charges, net income was $146.6 million, which includes the favorable tax settlement, compared with $135.2 million for the same period a year ago. (See below: "Reconciliation of GAAP to Non-GAAP Measures"). Reported sales grew approximately 10 percent to $2.6 billion, compared with $2.3 billion in the first half of the prior year. Approximately half of the revenue growth during the first six months of 2004 is attributable to the positive impact of currency translation, primarily the Euro. Core unit volume rose approximately 6.5 percent, compared with the same period a year ago. The year-to-date tax rate declined to 24.9 percent, a decrease of 310 basis points, due to a favorable foreign tax audit settlement and the effect of the Company's current geographic income mix. The Company expects a tax rate in the range of 27.5 percent to 28 percent for the second half of 2004, resulting in an annual tax rate of approximately 26.5 percent for the year, subject to geographic income mix. Operations Review: The Company's Pressure-sensitive Adhesives and Materials sector reported sales of $854 million, reflecting growth of approximately 15 percent over the second quarter of 2003. Approximately 75 percent of the sector's revenue growth is attributable to ongoing volume growth. The balance is attributable to the impact of currency translation, primarily the Euro, which was offset by negative price and mix. The North American pressure-sensitive roll materials business reported sales growth at a high single-digit rate compared with the year-ago second quarter. Contributing to the operation's growth is the expansion of its beverage label business, as major beer brewers are beginning to transition to pressure-sensitive adhesive labels for their bottles. Before the effect of currency translation, sales in the European pressure-sensitive roll materials business increased at a high single-digit rate. Business in Eastern European markets continued to be especially strong, with growth during the second quarter at rates exceeding 20 percent. The roll materials business in Asia continued to report exceptionally strong results, with sales growth in China of more than 40 percent, compared with the year-ago second quarter, and sales growth exceeding 30 percent in other Asian markets. The Latin American pressure-sensitive roll materials business also grew at a double-digit rate, reporting sales growth of approximately 16 percent before the impact of currency translation. The worldwide specialty tapes business posted double-digit sales growth before the impact of currency translation, while the global graphics and reflective materials business continued to improve with high single-digit sales growth, before the impact of currency translation. Operating margin, excluding the restructuring charge, for the Pressure-sensitive Adhesives and Materials sector improved by 110 basis points, compared with the prior-year second quarter, and improved 30 basis points sequentially over the first quarter of 2004. (See below: "Reconciliation of GAAP to Non-GAAP Supplementary Information"). The improvement in operating margin for the sector is attributable to successful execution of productivity improvement efforts, particularly in Europe. The Company expects additional improvement in operating margin for the sector during the second half of the year as a result of continued productivity improvement and increased pricing which are expected to offset higher raw material costs. The Consumer and Converted Products sector reported sales from continuing operations of $508 million, reflecting an increase of approximately 4 percent over the prior-year second quarter. Approximately 75 percent of the sector's revenue growth is attributable to ongoing volume growth. The balance is attributable to the impact of currency translation, primarily the Euro, which was offset by negative price and mix. Sales in the global office products business declined approximately 3 percent, compared with same period a year ago, excluding the impact of currency translation. The decline is attributable to the previously announced share loss at a large retailer in the fourth quarter of 2003. The retail information services business reported strong results for the second quarter, with sales increasing approximately 10 percent over the year-ago second quarter, excluding the impact of currency translation. This retail services business continues to expand in markets around the world as leading apparel manufacturers and retailers enhance the brand identity of their merchandise sold with labels, tags and tickets produced by Avery Dennison. Operating margin, excluding restructuring charges, for the Consumer and Converted Products sector declined by 10 basis points, compared with the year-ago second quarter, and improved 60 basis points sequentially over the first quarter of 2004. (See below: "Reconciliation of GAAP to Non-GAAP Supplementary Information"). The decrease is due to margin declines in the office products business, offset by strong results reported by the retail information services business. The Company expects continued pressure on operating margin for the sector during the remainder of the year as raw material costs increase for the office products business before planned price increases are implemented in January, 2005. Avery Dennison expects to offset this pressure with higher sales and continual productivity efforts. The Company said that in addition to the ongoing U.S. Department of Justice and European Commission investigations of the paper products and label stock industries, it was recently informed that the Competition Bureau of the Canadian Department of Justice has commenced an investigation into the label stock industry. Avery Dennison is cooperating with these investigations. Outlook: Avery Dennison announced that it is raising the lower end of its earnings expectation by $0.10 per share for 2004, bringing the Company's full-year earnings projection for 2004 to a range of $2.90 to $3.10 per share, before the impact of restructuring charges. This reflects the benefit of the reduced tax rate and better-than-expected results in the second quarter. The revised full-year guidance is based on expected earnings in the second half of 2004 in the range of $1.45 to $1.65 per share, with a range of $0.72 to $0.77 per share for the third quarter. "We are on a solid path to achieving our primary goal of top-line growth, as order patterns continue to show strength in the early part of the third quarter," said Neal. "Our Horizons top-line growth initiative, which now has been rolled out across the Company in virtually every operation around the world, is one of the most successful growth-generating programs we have ever implemented. The energy and enthusiasm that is generated by the Horizons process at Avery Dennison is truly remarkable, as new teams of employees are being created continually to develop and launch products and services in accelerated timeframes. More than 100 Horizons teams are working on current projects, with a total of more than 600 teams having been formed since the program was introduced. "We remain committed to leveraging our technological expertise to create state-of-the-art products for the future, which includes our developing RFID (radio frequency identification) business," said Neal. "Pressure-sensitive adhesive tags and labels are ideal vehicles for carrying an RFID chip and antenna. As one of the world's largest manufacturers of pressure-sensitive adhesive labeling materials, we are uniquely positioned to capture a meaningful share of this potentially large, new market."