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Avery Dennison Q4 Profits Rise

Thursday, January 31, 2013

Press release from the issuing company

PASADENA, Calif. -- Avery Dennison Corporation today announced preliminary, unaudited fourth quarter and full-year 2012 results. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, the discussion of the company’s results is focused on its continuing operations, and comparisons are to the same period in the prior year.

“Avery Dennison delivered strong earnings improvement in 2012,” said Dean Scarborough, Avery Dennison chairman, president and CEO. “Both Pressure-sensitive Materials and Retail Branding and Information Solutions delivered solid sales growth and expanded margins, and we returned $346 million of cash to shareholders through share repurchases and an increased dividend.

“We also took actions that position us well for significant profit growth in 2013, even in a soft economic environment,” Scarborough said. “We remain committed to delivering on our long-term goals, including double-digit earnings growth and higher returns.”

For more details on the company’s results, see the summary table accompanying this news release, as well as the supplemental presentation materials, “Fourth Quarter and Full-Year 2012 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished on Form 8-K with the SEC.

Fourth Quarter 2012 Results by Segment

All references to sales reflect comparisons on an organic basis, which exclude the estimated impact of currency translation, acquisitions and divestitures. Adjusted operating margin refers to earnings before interest expense and taxes, excluding restructuring costs and other items, as a percentage of sales.

Prior period amounts have been realigned to reflect the company’s new operating structure, which includes a new corporate expense allocation methodology.

Pressure-sensitive Materials (PSM)

The PSM segment now includes the Performance Tapes business, previously reported in other specialty converting businesses.

  • PSM segment sales increased approximately 6 percent. Within the segment, Label and Packaging Materials sales increased mid-single digits, as did the combined sales for other product lines (Graphics, Reflective, Performance Tapes).
  • Operating margin improved 100 basis points to 7.8 percent as the benefit of higher volume and productivity initiatives more than offset the impact of changes in product mix and higher employee-related expenses. Adjusted operating margin improved 100 basis points.

Retail Branding and Information Solutions (RBIS)

The RBIS segment now includes all of the radio-frequency identification (RFID) business, previously reported in other specialty converting businesses.

  • Sales increased approximately 10 percent compared to prior year driven by increased demand from U.S. and European retailers and brands, including accelerating RFID adoption.
  • Operating margin improved 120 basis points to 3.0 percent as the benefit of higher volume and productivity initiatives more than offset higher employee-related expenses and an impairment charge. Adjusted operating margin improved 270 basis points.

Other specialty converting businesses

As indicated above, other specialty converting businesses no longer include the Performance Tapes and RFID businesses.

  • Sales increased approximately 15 percent due to higher volume.
  • Operating margin declined 70 basis points to 2.3 percent due to the impact of a prior year gain on sale of a product line, as well as current year costs associated with exiting product lines and restructuring, partially offset by the benefit of higher volume. Adjusted operating margin improved by more than 12 points to 6.4 percent.


Share Repurchases

The company repurchased 7.9 million shares during 2012 at an aggregate cost of $235 million (approximately 7 percent of shares outstanding).

Results of Discontinued Operations

Earnings from OCP and certain costs associated with its anticipated divestiture are reported as income or loss from discontinued operations (net of tax) in the consolidated income statement. Designed and Engineered Solutions (DES) results are currently reported in Other specialty converting businesses, but will be reclassified as discontinued operations as of the first quarter of 2013.

Earnings per share from discontinued operations increased from $(0.06) to $0.15. Adjusted earnings per share from discontinued operations increased from $0.03 to $0.17, primarily due to an adjustment in the tax rate for discontinued operations in the fourth quarter of 2011.

Income Taxes

The full-year adjusted tax rate was approximately 34 percent, in line with expectations and comparable to 2011.

Cost Reduction Actions

In the first half of 2012, the company began a restructuring program to reduce costs across all segments of the business. The company currently anticipates more than$100 million in annualized savings from this program by mid-2013. To implement these actions, the company incurred restructuring costs and other items of approximately$56 million in 2012, and expects to incur $25 million in 2013.


In the company’s supplemental presentation materials, “Fourth Quarter and Full-Year 2012 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2013 financial results. Based on the factors listed and other assumptions, the company expects 2013 earnings per share from continuing operations of $2.23 to $2.63. Excluding an estimated $0.17 per share for restructuring costs and other items, the company expects adjusted (non-GAAP) earnings per share from continuing operations of $2.40 to $2.80. The company expects free cash flow from continuing operations in the range of $275 million to $325 million. The company’s guidance includes operating results from DES and excludes the impact of share repurchase using net proceeds from divestitures.

Note: Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.


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