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Avery Dennison Reports Record Earnings in Q4

Wednesday, January 26, 2005

Press release from the issuing company

PASADENA, Calif.--Jan. 25, 2005-- Avery Dennison Corporation today reported fourth quarter diluted earnings per share of $0.83, compared with $0.59 per share for the prior-year fourth quarter. Excluding a special charge and a gain resulting from a divestiture in the year-ago fourth quarter, earnings per share from continuing operations grew 28 percent. "Our outstanding results this quarter, which include record quarterly earnings and strong sales growth in every major geographic region in which we operate, demonstrate the success of our intense focus on improving profitability and expanding top-line sales," said Philip M. Neal, chairman and chief executive officer of Avery Dennison. "We faced several challenges in 2004, including a significant rise in raw material costs, yet we achieved our goals for sales and earnings." "We are pleased with the progress of our Horizons growth program," said Neal. "This innovative approach to generating ideas, developing products and quickly introducing them to market has been implemented at businesses throughout the Company and is now a solid platform for our new business development efforts." Financial highlights for the fourth quarter of 2004: Earnings per share, on a diluted basis, were $0.83, compared with $0.59 per share for the same quarter a year ago. The year-ago fourth quarter results included a special charge and gain resulting from a divestiture. Excluding these items, earnings per share were $0.65 in the fourth quarter of 2003. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures"). Net income was $83.6 million, compared with $59.3 million in the fourth quarter of 2003. Excluding the prior-year charge and gain, net income was $64.8 million in the fourth quarter of 2003, reflecting 29 percent growth in net income from continuing operations, compared with the prior-year fourth quarter. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures"). Reported sales from continuing operations grew 16.5 percent to $1.4 billion for the fourth quarter of 2004 compared with $1.2 billion in the fourth quarter of 2003. The combined effect of an extra week in the fiscal year that was included in the fourth quarter, and increased year-end orders by several large customers in the Office and Consumer Products segment in advance of a price increase, contributed approximately 25 percent of the sales growth, while the impact of currency translation and a small acquisition in the retail information services business contributed another 25 percent. Core unit volume grew approximately 6.5 percent over the same period a year ago, excluding the impact of the extra week in the fiscal year, increased year-end purchasing activity by office products customers and the acquisition. Sales growth in the U.S. exceeded 11 percent. Local currency sales (which excludes the impact of currency translation) were up 8 percent in Europe, excluding the contribution of an acquisition in the retail information services business, and increased 23 percent in emerging markets. Sales in emerging markets contributed approximately 20 percent of the Company's total revenue. Operating margin improved 30 basis points in the fourth quarter of 2004, compared with the fourth quarter of 2003, excluding restructuring charges in the prior-year fourth quarter. The improvement reflects lower operating expenses as a percent of sales, partially offset by reduced gross profit margin. On a sequential basis, operating margin remained essentially unchanged compared with the third quarter of 2004. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures"). The effective tax rate for the fourth quarter was 23.8 percent, 370 basis points lower than the same quarter a year ago. Reporting Change: Avery Dennison said that it has reorganized its reporting segments which will provide enhanced transparency of operational results. The change will have no effect on the way the Company operates or manages its businesses. The four new segments are: 1) Pressure-sensitive Materials, consisting of the roll materials and the graphics and reflective materials businesses, as well as the performance polymers and engineered films operations; 2) Office and Consumer Products, the business that manufactures a variety of consumer products under the Avery brand name; 3) Retail Information Services, which serves the retail and apparel manufacturing industries and in the past was included in the Consumer and Converted Products segment; and 4) Other Businesses, which is comprised of the industrial and automotive products business and the security printing business that produces postage stamps and battery labels, previously reported as part of the Consumer and Converted Products segment, as well as the specialty tapes business, previously included in the Pressure-sensitive Adhesives and Materials segment. Approximately 90 percent of Avery Dennison's total sales are reported in three segments: Pressure-sensitive Materials, Office and Consumer Products, and Retail Information Services. Sales of the recently formed RFID (radio frequency identification) business will be reported as part of the Other Businesses segment in the first quarter of 2005; the business is included with corporate expense for the fourth quarter of 2004. Operational Highlights: The Pressure-sensitive Materials segment reported strong sales growth of approximately 19 percent. The North American pressure-sensitive roll materials business reported double-digit sales growth. Likewise, local currency sales in the pressure-sensitive roll materials business grew at double-digit rates in Europe, Asia and Latin America. Pressure-sensitive materials sales growth in China was particularly robust, with an increase of approximately 50 percent compared with the prior-year quarter. In addition to the vigorous growth in emerging markets, the roll materials business increased sales through market share gains and new applications, particularly in the premium packaging markets. Avery Dennison said that, in addition to price increases that took effect in 2004, another price increase has been implemented for customers of the North American roll materials business, effective in early 2005. A price increase for customers of the European roll materials business currently is in the process of being implemented. Sales in the Office and Consumer Products business increased by approximately 11 percent, compared with the prior-year fourth quarter. Approximately 90 percent of the growth is attributable to the extra week in the fiscal year and the pre-buying activity by large customers. The Company said that raw material cost inflation had negatively affected this business during the quarter; however, a price increase that will go into effect during the first quarter of 2005 was recently accepted by all customers. The Retail Information Services segment reported strong sales growth of approximately 20 percent, with approximately one-third of the growth due to the impact of currency translation and benefit from the acquisition of Rinke Etiketten, a woven label manufacturer in Germany. The Company said that new facilities in China as well as in Central and South America expanded its production capabilities. Financial highlights for the year: Earnings per share from continuing operations, on a diluted basis, were $2.78, compared with $2.68 per share in 2003. Excluding the restructuring charges and gains in 2003, annual earnings per share grew 15 percent. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures"). Net income grew to $279.7 million, compared with $267.9 million in 2003. Excluding the restructuring charges and gains in 2003, net income increased 16 percent in 2004. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures"). Reported sales from continuing operations grew 12 percent to $5.3 billion, compared with $4.8 billion in 2003. The revenue increase is due to volume growth and a positive impact from currency exchange rates, partially offset by a negative impact from price and mix. Operating margin declined 20 basis points compared with 2003, excluding restructuring charges and gains in 2003. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures"). The full-year tax rate was 25.1 percent, down 240 basis points compared with last year. The full-year tax rate includes a favorable tax audit settlement of $4 million in the second quarter of 2004. Outlook: Avery Dennison announced that it expects fully diluted earnings for the first quarter of 2005 to be in the range of $0.71 to $0.78 per share, with an estimate of annual earnve the rapidly growing demand for this technology," said Neal. "We anticipate operating margin, before RFID spending, to improve over the course of the next 12 months," said Neal. "In addition, our recent pricing actions, aggressive cost reduction and productivity initiatives, as well as technological innovations to improve our manufacturing processes, will contribute to operational success in 2005 and beyond." Avery Dennison is a global leader in pressure-sensitive labeling materials, office products and retail tag, ticketing and branding systems. Based in Pasadena, Calif., Avery Dennison is a FORTUNE 500 company with 2004 sales of $5.3 billion. Avery Dennison employs approximately 21,400 individuals worldwide who apply the Company's technologies to develop, manufacture and market a wide range of products for both consumer and industrial markets. Products offered by Avery Dennison include Avery-brand office products and graphics imaging media, Fasson-brand self-adhesive materials, peel-and-stick postage stamps, reflective highway safety products, labels for a wide variety of automotive, industrial and durable goods applications, brand identification and supply chain management products for the retail and apparel industries, and specialty tapes and polymers.

 

 

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