PASADENA, Calif.--Jan. 27, 2004-- Avery Dennison Corporation today reported fourth quarter diluted earnings per share of $0.59, compared with $0.56 per share for the prior-year fourth quarter. Excluding a special charge and a gain resulting from a divestiture, fourth quarter 2003 earnings were $0.65 per share, exceeding the Company's previously announced expectations for the quarter. "We are pleased to report better-than-expected top-line growth and earnings for the fourth quarter," said Philip M. Neal, chairman and chief executive officer of Avery Dennison. "While 2003 proved to be a year of persistently challenging market conditions across most of our businesses, we took aggressive steps to further reduce costs and invest in innovative programs for top-line growth." "Our Horizons growth program has taken off throughout the Company and has created hundreds of new applications and products. During its first full year of implementation, this fast-moving process generated approximately $50 million of annualized incremental sales by the end of 2003, achieving our ambitious initial goals," said Neal. Financial highlights for the fourth quarter of 2003: Earnings per share, on a diluted basis, were $0.59, compared with $0.56 per share for the same quarter a year ago. Fourth quarter earnings include the negative effect of a special after-tax charge to earnings of $0.25 per share related to acquisition integration costs and other cost reduction initiatives, partially offset by the positive effect of a gain of $0.19 per share, resulting from the divestiture of the Company's package label converting operations in Europe. The year-ago fourth quarter results included the negative effect of a special after-tax charge to earnings of $0.12 per share, which was related to cost reduction efforts. A positive impact from currency translation contributed approximately $0.04 per share to fourth quarter 2003 earnings. The benefit from currency translation was offset by a negative impact to operating profit from the devaluation of the U.K. pound against the Euro. Net income was $59.3 million, compared with $55.5 million in the fourth quarter of 2002, including the current-year and prior-year charges and gain. Reported sales from continuing operations grew 12.7 percent to $1.2 billion for the fourth quarter of 2003, compared with $1.1 billion in the fourth quarter of 2002, reflecting approximately equivalent contributions from volume growth and the impact of currency translation. A higher-than-usual increase in orders by several large customers in the office products business required to reach volume-based rebate targets in December contributed to revenue growth in the quarter, which had an estimated $0.02 per share positive impact on earnings. Core unit volume grew approximately 6.5 percent over the same period a year ago. Operating margin, excluding restructuring charges posted in both the current and prior-year fourth quarters, declined 130 basis points in the fourth quarter of 2003, compared with the fourth quarter of 2002. (See attachment A-3, titled "Reconciliation of GAAP to Non-GAAP Measures"). The decline reflects costs associated with manufacturing capacity expansion at two facilities in Europe, the impact of the U.K. pound devaluation, a challenging pricing environment in the pressure-sensitive roll materials business, and negative product mix, which were partially offset by the benefit of productivity initiatives. On a sequential basis, operating margin declined 10 basis points, compared with the third quarter of 2003, excluding restructuring charges. The year-to-date tax rate for the fourth quarter was 27.5 percent, unchanged from the third quarter. Operations Review: The Pressure-sensitive Adhesives and Materials sector posted revenue growth of approximately 14 percent over the same period in 2002, with reported sales for the sector of $784.7 million in the fourth quarter. Approximately two-thirds of the sales growth is attributable to the impact of currency translation, primarily the Euro. Sales in the North American pressure-sensitive roll materials business improved on a sequential basis, with fourth-quarter revenue unchanged from the prior-year period, compared with the low single-digit rate of decline reported in the second and third quarters of 2003. Before the impact of currency translation, sales in the European pressure-sensitive roll materials business increased at a low single-digit rate, driven by continued rapid growth in Eastern European markets, which was offset by modest growth in other parts of the region. The roll materials business in China reported another robust quarter, with sales growth of approximately 45 percent, compared with the year-ago fourth quarter. Sales in the roll materials business in Latin America increased approximately 25 percent over the prior-year fourth quarter, excluding the impact of currency translation. Before the impact of currency translation, the global specialty tape business achieved double-digit sales growth during the quarter, while the global graphics and reflective materials business achieved solid mid single-digit sales growth. Operating margin, excluding restructuring charges, for the Pressure-sensitive Adhesives and Materials sector declined 150 basis points, compared with the prior-year fourth quarter, and 90 basis points sequentially. (See attachment A-4, titled "Reconciliation of GAAP to Non-GAAP Supplementary Information"). More than half of the year-on-year decline is attributable to costs associated with the start-up of expanded operations at two manufacturing plants in Europe and a more challenging pricing environment in the European pressure-sensitive materials market. The Consumer and Converted Products sector reported sales of $497.6 million in the fourth quarter, reflecting growth from continuing operations of more than 11 percent over the fourth quarter a year ago, with approximately one-third of the increase attributable to the impact of currency translation. Reported sales growth benefited from a positive impact of approximately 2 points from acquisitions, net of several small product line divestitures. Sales in the worldwide office products business increased slightly, before the impact of currency translation, reflecting an improvement over the modest revenue declines reported in previous quarters of 2003. Sales in the retail information services business increased approximately 13 percent compared with the year-ago fourth quarter, excluding acquisitions, divestitures and currency translation, reflecting a substantial improvement over the preceding three quarters in 2003. Operating margin, excluding restructuring charges, for the Consumer and Converted Products sector increased 10 basis points, compared with the prior-year fourth quarter, and increased 90 basis points sequentially. (See attachment A-4, titled "Reconciliation of GAAP to Non-GAAP Supplementary Information"). Financial highlights for the year: Earnings per share, on a diluted basis, were $2.68, compared with $2.59 per share in 2002. Annual earnings include the net effect of current-year and prior-year restructuring charges and the impact of discontinued operations. A positive impact from currency translation contributed $0.14 per share to full-year earnings in 2003. Net income grew to $267.9 million, compared with $257.2 million in 2002, including the effect of current-year and prior-year restructuring charges and the impact of discontinued operations. Reported sales from continuing operations grew 14.6 percent to $4.8 billion, compared with $4.2 billion in 2002, primarily reflecting the positive impact of currency translation and acquisitions, net of divestitures. Operating margin for the year, excluding the impact of restructuring charges, declined by approximately 150 basis points compared with 2002. (See attachment A-3, titled "Reconciliation of GAAP to Non-GAAP Measures"). Return on shareholders' equity was 22.3 percent, and return on total capital was 14.3 percent. Outlook Avery Dennison announced that it expects earnings for the first quarter of 2004 to be in the range of $0.60 to $0.67 per share, with an estimate of annual earnings for 2004 in the range of $2.75 to $3.10 per share, excluding the effect of integration-related restructuring charges. The Company stated that it expects to take final charges of $30 million to $35 million associated with the Jackstadt integration during the first half of the year, which are expected to have a negative impact on earnings of $0.22 to $0.25 per share. Avery Dennison said that its outlook for 2004 reflects general market expectations of improved economic trends compared with the prior year, and is based on other key assumptions, including reported revenue growth of 4 to 6 percent in the first quarter and 3.5 to 6.5 percent for the full year, and operating margin in the range of 8 to 9 percent in the first quarter and 9 to 10 percent for the full year. "We are well positioned for the future, as we continue to aggressively develop new products and services to grow our businesses in 2004," said Neal. "The early success of our first Horizons projects provides us with a proven platform for achieving new levels of top-line growth. Employees throughout the Company are energized to work closely with customers to develop and execute creative solutions to meet customer needs. We have solid programs and processes in place that are designed to drive sales growth and improved profitability in 2004 and beyond."