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Avery Dennison Reports 7% Sales Increase in Q2

Wednesday, July 27, 2005

Press release from the issuing company

PASADENA, Calif.--July 26, 2005-- Avery Dennison Corporation today reported second quarter diluted earnings per share of $0.89, compared with $0.68 for the second quarter of 2004. The second quarter 2005 earnings include a negative impact of $0.02 per share from asset impairments, transition costs associated with a previously announced plant shutdown, and restructuring costs, while prior-year second quarter earnings include a negative impact of $0.10 per share from a restructuring charge primarily related to the integration of an acquisition. Excluding these costs, second quarter earnings per share increased by more than 16 percent over the comparable quarter. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".) Sales for the second quarter of $1.4 billion were in line with the Company's expectations, an increase of approximately 7 percent over the same quarter a year ago, with core unit volumes increasing by approximately 1 percent. Profitability increased due to both improved gross profit margin and control of operating expenses. "Our disciplined pricing actions and focus on expense management have proven effective in the short term, particularly in light of soft market conditions," said Dean A. Scarborough, president and chief executive officer of Avery Dennison. "We remain committed to our long-term strategies to accelerate top-line growth and continue productivity improvement." Financial highlights for the second quarter of 2005: Earnings per share, on a diluted basis, were $0.89, compared with $0.68 in the same quarter a year ago, including the negative impact of restructuring, asset impairment and plant transition costs totaling $0.02 per share and $0.10 per share in the current and prior years, respectively. While results for the second quarter of 2005 include a $0.04 per share benefit from a reduction in the tax rate compared with the first quarter of 2005, the effective tax rate for the second quarter was comparable to the same period a year ago. Net income was $89.4 million, compared with $68.5 million in the second quarter of 2004, including the after-tax impact of restructuring, asset impairment and plant transition costs totaling $2.4 million and $10.0 million in the current and prior years, respectively. Sales grew approximately 7 percent over the prior year, reaching $1.4 billion for the second quarter of 2005, compared with $1.3 billion in the second quarter of 2004. The impact of currency translation contributed approximately 45 percent of the sales growth during the quarter, while price and mix contributed approximately 30 percent. Local currency sales in the emerging markets of Asia, Latin America, and Eastern Europe were up 13 percent over the same period last year. Core unit volume grew an estimated 1 percent over the prior-year second quarter, below the Company's expectations, reflecting generally weak industry conditions and share loss related to price increases in several businesses. Gross profit margin improved 50 basis points compared with the second quarter of 2004 due to the completion of the European manufacturing consolidation in the prior year and other productivity improvement efforts. Higher raw material costs were fully offset with selling price increases. Marketing, general and administrative expenses as a percent of sales improved by 10 basis points compared to the same quarter a year ago, and 110 basis points compared to the first quarter of 2005, due in part to spending controls implemented during the quarter. Operating margin improved by 70 basis points over the second quarter of 2004, excluding restructuring, asset impairment and plant transition costs recognized in both periods, due to the factors affecting gross profit margin and marketing, general and administrative expenses described above. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".) The tax rate for the second quarter was 22.7 percent, reflecting a reduction of 200 basis points in the year-to-date tax rate due to geographic income mix and other factors. Financial highlights for the first six months of 2005: Earnings per share, on a diluted basis, were $1.46, compared with $1.21 for the first half of 2004. Excluding restructuring, asset impairment and plant transition costs (offset by a small gain on sale of assets in the first quarter of 2005), earnings per share were $1.52, compared with $1.46 for the first six months of 2004. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".) Net income was $147.1 million, compared with $121.1 million for the first six months of 2004, including the after-tax impact of restructuring, asset impairment and plant transition costs (offset by a small gain on sale of assets in the first quarter of 2005) totaling $5.5 million and $25.5 million in the current and prior years, respectively. Sales grew approximately 8 percent to $2.8 billion, compared with $2.6 billion in the first half of the prior year. The impact of currency translation contributed approximately 40 percent of the sales growth during the first six months, while price and mix contributed approximately 30 percent. Core unit volume rose approximately 2 percent compared with the same period a year ago. Segment results The Company's Pressure-sensitive Materials segment reported sales of approximately $806 million, up nearly 9 percent over the second quarter of 2004. Slightly more than half of the increase in segment revenue reflects unit volume growth and a positive contribution from price and mix. The balance of the growth is attributable to the impact of currency translation, primarily the Euro. Before the effects of currency translation, sales in the North American pressure-sensitive roll materials business declined by approximately 3 percent, with the benefit of price increases more than offset by a decline in volume. The volume decline affected most business segments within the North American pressure-sensitive roll materials business with the exception of films, which continued to benefit from growth in the beverage label market. Sales in the European pressure-sensitive roll materials business grew approximately 12 percent in local currency, driven by strong unit volume growth, due in part to share gain related to a paper industry strike in Finland that negatively affected some of the Company's competitors. Strong growth in the Eastern European region also contributed to this result. The roll materials business in Asia reported double digit growth in local currency sales, while this business in Latin America grew at a high single digit rate. Sales in the graphics and reflective materials business declined by approximately 2 percent before the effect of currency. Excluding restructuring and asset impairment costs, operating margin for the segment increased to 9.4 percent compared with 8.6 percent a year ago, due to productivity improvement initiatives, including a plant closure completed in Europe during the second quarter of 2004, as well as spending controls. The benefit of price increases covered higher raw material costs. (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information".) The Office and Consumer Products segment reported sales of approximately $300 million, an increase of more than 4 percent over the second quarter of 2004. Slightly more than half of the revenue growth for the segment reflects selling price increases. The balance of the sales growth is attributable to the impact of currency translation, primarily the Euro. The segment benefited from earlier than usual shipment of back-to-school orders. An estimated $10 million in customer orders related to the back-to-school season were shipped earlier than the prior year, shifting an estimated $0.03 of earnings per share from the third quarter into the second. Excluding restructuring and plant transition costs, operating margin for the segment increased to 17.0 percent compared with 14.1 percent a year ago, reflecting productivity improvement efforts and spending controls. Price increases, effective January 1 of this year, have covered cumulative raw material cost inflation for the segment. (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information".) The Retail Information Services segment reported sales of approximately $182 million, an increase of slightly more than 10 percent over the second quarter of 2004. Approximately two-thirds of the growth is due to the combined effect of the Rinke acquisition and currency translation, with the balance due to core unit volume growth. Excluding restructuring costs, operating margin for the segment increased to 10.4 percent in the second quarter, compared with 10.1 percent a year ago, reflecting productivity improvement efforts, including movement of production from Hong Kong to lower cost operations in mainland China, as well as spending controls. (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information".) Businesses in the other specialty converting group reported sales of approximately $131 million, comparable to the prior year. Excluding asset impairment, operating margin for these businesses declined to 1.9 percent from 8.4 percent a year ago, largely due to higher spending related to the Company's radio frequency identification (RFID) division. (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information".) Outlook Reflecting improved profitability and the reduction in its tax rate, Avery Dennison is raising its earnings-per-share guidance for the full year to $2.95 to $3.20, from its previously announced expectation of $2.85 to $3.15. The Company's earnings guidance excludes the impact of restructuring and asset impairment charges. Year-to-date charges and transition costs, net of gain on sale of assets, total $0.06 per share. Additionally, the Company anticipates modest costs associated with restructuring actions in the third quarter of 2005, with the possibility of more significant actions in the fourth quarter of 2005. The Company said its outlook anticipates continued weakness in core volume growth, with the expectation of relatively stable raw material costs. "Given modest expectations for unit volume growth in the short term, we will continue to focus on expense management and we are in the process of evaluating new opportunities for reducing our cost structure," said Scarborough. "While some of the second quarter spending cuts are not sustainable over the long term, we expect to secure additional sources of cost savings as a result of a number of key initiatives currently underway across the Company." "Our long-term opportunities for growth are excellent. We are confident that improved economic conditions, our leadership position in growing emerging markets, innovations from our Horizons growth program and the expansion of our RFID business will accelerate demand for our products and services in the future," said Scarborough. 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 more than 21,000 individuals in 47 countries 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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