PASADENA, Calif.--Oct. 19, 2004-- Avery Dennison Corporation today reported third quarter diluted earnings per share of $0.75, compared with $0.65 per share from continuing operations for the third quarter of 2003, reflecting an increase of approximately 15 percent.
"We are pleased to report double-digit increases in both revenue and earnings, with solid sales and volume growth in every major geographic region," said Philip M. Neal, chairman and chief executive officer of Avery Dennison. "While our pricing actions have not yet caught up with the increase in raw material costs that we have incurred, we expect margin improvement as we continue to implement price increases."
Financial highlights from continuing operations for the third quarter of 2004:
Earnings per share, on a diluted basis, were $0.75, compared with $0.65 per share in the same quarter a year ago. Third quarter earnings include a positive impact from currency translation that contributed approximately $0.01 per share.
Net income grew approximately 16 percent to $75 million, compared with $64.8 million in the third quarter of 2003.
Reported sales grew 11 percent from prior-year levels, reaching $1.3 billion for the third quarter of 2004, compared with $1.2 billion in the third quarter of 2003. The positive impact of currency translation, primarily the Euro, contributed approximately one-third of the revenue growth during the quarter.
Core unit volume grew approximately 7 percent over the prior-year third quarter, consistent with the Company's previously announced expectations.
Gross profit margin declined 40 basis points, compared with both the year-ago third quarter and the second quarter of 2004, to 29.1 percent. The decrease was due to higher raw material costs, both petrochemical and paper related, which have been partially offset by price increases.
Operating margin increased 20 basis points from the third quarter of 2003 and declined 10 basis points from the second quarter of 2004 to 8.7 percent, reflecting the changes in gross profit margin offset by improvement in operating expenses as a percentage of sales.
Financial highlights from continuing operations for the first nine months of 2004:
Earnings per share, on a diluted basis, were $1.95, including $0.25 per share in restructuring and asset impairment charges primarily related to the integration of the Jackstadt acquisition, compared with $2.03 for the first nine months of 2003, which included a net benefit of $0.03 per share related to a gain from a legal settlement partially offset by asset impairment charges and other costs. Excluding the special items, year-to-date earnings increased approximately 10 percent to $2.20 per share. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures").
Net income was $196.1 million, including restructuring and asset impairment charges of $25.5 million, compared with $202.9 million for the first nine months of 2003, which included a net benefit of $2.8 million related to a gain from a legal settlement partially offset by asset impairment charges and other costs. Excluding the special items, net income for the first nine months of 2004 increased approximately 11 percent to $221.6 million. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures").
Reported sales grew approximately 10.6 percent to $3.9 billion, compared with $3.5 billion in the first nine months of the prior year. Approximately half of the revenue growth during the first nine months of 2004 is due to the positive impact of currency translation, primarily the Euro.
Core unit volume rose approximately 7 percent, compared with the same period a year ago.
Operating margin decreased 30 basis points from the same period a year ago, excluding restructuring charges and other special items, reflecting higher raw material costs that were partially offset by price increases and unfavorable business mix. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures").
The year-to-date tax rate was approximately 26 percent compared with 27.5 percent for the same period a year ago.
Pressure-sensitive Adhesives and Materials Sector
The Company's Pressure-sensitive Adhesives and Materials sector reported sales of $857 million, an increase of approximately 13 percent over the third quarter of 2003. Ongoing volume growth contributed approximately 60 percent of the sector's revenue increase. The balance is due to the impact of currency translation, primarily the Euro, as well as a positive impact from price and mix. The North American pressure-sensitive roll materials business continued to report sales growth at a high single-digit rate compared with the year-ago third quarter. The operation generated solid growth marked by strong demand for film label materials, especially in the beverage market. Before the effect of currency translation, sales in the European pressure-sensitive roll materials business increased at a stronger pace than in the North American business, with approximately 10 percent growth over the prior-year third quarter. Sales growth in Eastern European markets continued to exceed 20 percent, excluding the impact of currency translation.
The roll materials business in Asian markets continued to generate strong results, with sales growth in China again exceeding 40 percent compared with the year-ago third quarter. Sales growth in the Latin American pressure-sensitive roll materials business slowed to a high single-digit rate, before the impact of currency translation. The worldwide specialty tapes business also slowed modestly, posting high single-digit sales growth before the impact of currency translation. Sales growth in the global graphics and reflective materials business slowed to a mid-single-digit level, before the impact of currency translation.
Operating margin for the Pressure-sensitive Adhesives and Materials sector increased by 160 basis points compared with the prior-year third quarter, and improved 40 basis points sequentially over the second quarter of 2004, excluding restructuring charges, to reach 8.9 percent. The successful completion of Jackstadt integration activities in the second quarter drove the improvement in operating margin for the sector. Increased raw material costs were partially offset by pricing actions during the quarter, and additional price increases are currently being implemented.
Consumer and Converted Products Sector
The Consumer and Converted Products sector reported sales from continuing operations of $517 million, reflecting growth of approximately 5 percent over the third quarter of 2003. Unit volume growth contributed approximately 75 percent of the increase, with the balance due to a benefit from currency translation, primarily the Euro, which was offset by a negative impact from price and mix.
Sales in the global office products business declined at a low single-digit rate compared with the same period a year ago, excluding the impact of currency translation. The decline is due to the previously announced share loss at a large retailer, which occurred in the fourth quarter of 2003. The retail information services business continued to report strong double-digit results for the third quarter, with sales increasing approximately 20 percent over the year-ago third quarter, excluding the impact of currency translation. The retail information services business continues to expand its capabilities to serve apparel manufacturers and retailers in markets around the world with the recent acquisition of Rinke Etiketten, a leading woven-label manufacturer based in Germany.
Operating margin from continuing operations for the Consumer and Converted Products sector declined by 40 basis points compared with the year-ago third quarter, and decreased 70 basis points sequentially over the second quarter of 2004, excluding restructuring charges, to 11.5 percent. The decline from the year-ago third quarter is due to lost volume in the higher margin office products business, price declines and raw material cost increases, which were partially offset by productivity improvements. The sequential decrease is due to the typical seasonal volume decline in the retail information services business, as well as rising raw material costs. As previously announced, the Company expects to recover the rising raw material costs in the office products business with price increases that it plans to implement in January 2005.
Avery Dennison announced its earnings expectation for the fourth quarter of 2004 in the range of $0.74 to $0.80 per share, bringing the Company's full-year earnings projection for 2004 to a range of $2.95 to $3.01 per share, excluding restructuring charges. The earnings expectation is based on a modest slowdown in underlying demand during the fourth quarter, and a projection of revenue growth in the quarter of 7 to 10 percent.
The Company advised that a current global supply shortage of acrylic monomers, a component used in making some of its adhesive materials, is affecting certain of its materials businesses. The Company indicated that, based on current information, the shortage is not expected to have a material impact on fourth quarter 2004 earnings and that production of Avery Dennison products has been affected minimally, but it said that a potentially significant downside risk related to this shortage does exist.
"We are making progress in meeting our near-term challenges and remain confident about our opportunities for long-term growth," said Neal. "At the same time, we are addressing the effects of rising raw material costs head-on as we implement price increases and execute further measures to improve productivity.
"Meanwhile, our Horizons program continues to generate new ideas and additional sales that are helping us meet our aggressive top-line growth goals. We remain committed to investing in our radio frequency identification (RFID) business which is our largest growth opportunity in more than a decade. Pressure-sensitive materials provide an ideal vehicle for carrying an RFID chip and antenna, and Avery Dennison is developing the production capabilities and technological expertise that will enable us to manufacture hundreds of millions of electronic labels annually. During the third quarter we created a separate business unit dedicated to the RFID label business, and we are on track to produce and begin shipping our proprietary RFID inlays to label converters serving leading consumer products companies and retailers by the end of the year."
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