• Pension settlement charges of $3.13 per share, net of tax, drove a loss in reported income; reported EPS of ($1.74)
  
  • Adjusted EPS (non-GAAP) of $1.48
• 1Q19 Net sales declined 2.0% to $1.74 billion
  
  • Organic sales change (non-GAAP) of 2.4%
• FY19 reported EPS guidance increased to $3.10 to $3.35, due to lower-than-expected pension settlement charges
  
  • FY19 adjusted EPS guidance reaffirmed at $6.45 to $6.70

Glendale, Calif. – Avery Dennison Corporation today announced preliminary, unaudited results for its first quarter ended March 30, 2019. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, comparisons are to the same period in the prior year.

“Our Q1 performance was solid, given a challenging start to the year, with adjusted earnings in line with our expectations,” said Mitch Butier, President and CEO.

“In the Label and Graphic Materials segment, organic growth slowed, while profitability was solid. We expect organic growth and operating margin to improve through the course of the year. Retail Branding and Information Solutions continues to deliver, with another quarter of strong sales growth for RFID products, solid growth in the base business, and significant margin expansion. And, despite a modest organic sales decline, Industrial and Healthcare Materials delivered strong margin expansion through increased productivity.

“We reaffirm our previous guidance for 2019 adjusted earnings per share, with organic growth improving over the balance of the year, along with continued margin expansion,” added Butier. “Our ongoing confidence in our ability to achieve our guidance and long-term targets reflects the resilience of our business and ability of our team to adapt under changing market conditions.”

First Quarter 2019 Results by Segment

Label and Graphic Materials
Reported sales declined 3.3 percent; on an organic basis, sales grew 1.4 percent, as prior year pricing actions more than offset a modest decline in volume/mix. On an organic basis, sales increased modestly in Label and Packaging Materials, and were up low-single digits in the combined Graphics and Reflective Solutions businesses.

Reported operating margin decreased 50 basis points to 11.8 percent, reflecting higher employee-related costs, lower volume, and transition costs associated with the European restructuring plan. Adjusted operating margin also decreased 50 basis points to 12.5 percent.

Retail Branding and Information Solutions
Reported sales increased 3.2 percent; on an organic basis, sales grew 7.0 percent driven by continued strength in radio frequency identification (RFID) solutions and solid growth in the base business.

Reported operating margin increased 390 basis points to 12.9 percent, as a decline in restructuring charges, increased volume, and lower currency-related costs more than offset higher employee-related costs. Adjusted operating margin increased 220 basis points to 12.4 percent.

Industrial and Healthcare Materials
Reported sales declined 5.1 percent; on an organic basis, sales declined by 1.0 percent. On an organic basis, sales in industrial categories were down low-single digits (up mid-single digits excluding products serving global automotive markets), while sales in healthcare categories were up low-single digits.

Reported operating margin increased 80 basis points to 8.3 percent as the benefit of productivity actions more than offset the impacts of lower volume and higher restructuring charges. Adjusted operating margin increased 200 basis points to 9.5 percent.

Other

Share Repurchases / Equity Dilution
The company repurchased 0.9 million shares in the first quarter at an aggregate cost of $89 million. Net of dilution from long-term incentive awards, the company’s share count decreased 0.4 million in the quarter. The cost of repurchases, net of proceeds from stock option exercises, was $83 million.

Income Taxes
The first quarter effective tax rate on the reported pre-tax loss was 48.7 percent, compared to 20.9 percent in the prior year, reflecting the tax impacts of the pension settlement charges associated with the termination of the U.S. pension plan. The adjusted tax rate for the quarter was 25 percent, consistent with the company’s current expectation for its full year adjusted tax rate.

Cost Reduction Actions
In the first quarter, the company realized approximately $5 million in pretax savings from restructuring, net of transition costs, and incurred pretax restructuring charges of approximately $11 million, consisting almost entirely of cash costs related to severance.

U.S. Pension Plan Termination
On March 21, 2019, the company effectively settled its liabilities associated with its previously announced termination of the Avery Dennison Pension Plan (ADPP), a tax-qualified U.S. defined benefit plan, through the execution of an agreement to purchase annuities from American General Life Insurance Company (“AGL”), a subsidiary of American International Group, Inc. Under the agreement, the company settled approximately $750 million of pension obligations for approximately 8,500 active and former employees and their beneficiaries, with AGL assuming the future annuity payments for these individuals, commencing April 1, 2019. This settlement resulted in $447 million of pretax charges, partially offset by related tax benefits of $180 million, which the company recorded in March 2019.

The company contributed approximately $7 million of cash to the ADPP during the first quarter of 2019 to cover costs associated with the settlement of these liabilities.

Outlook
In its supplemental presentation materials, “First Quarter 2019 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2019 financial results. Based on the factors listed and other assumptions, the company has increased its guidance for 2019 reported earnings per share to $3.10 to $3.35, reflecting lower-than-expected costs to settle its U.S. pension plan liabilities.

Excluding an estimated $3.35 per share related to pension settlement charges, restructuring charges and other items, the company continues to expect adjusted earnings per share of $6.45 to $6.70.

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

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

Sales change ex. currency refers to the increase or decrease in net sales excluding the estimated impact of foreign currency translation and currency adjustment for transitional reporting of highly inflationary economies (Argentina), with segment results adjusted for reclassification of sales between segments. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations. Organic sales change refers to sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year. Adjusted operating margin refers to income before taxes, interest expense, other non-operating expense, and other expense, net, as a percentage of net sales.

For more information and to listen to a live broadcast or an audio replay of the quarterly conference call with analysts, visit the Avery Dennison website at www.investors.averydennison.com.