Highlights:

• 2Q21 Reported EPS of $2.19, up 131%
  
  • Adjusted EPS (non-GAAP) of $2.25, up 77%
• 2Q21 Net sales increased 37.5% to $2.10 billion
  
  • Sales growth ex. currency (non-GAAP) of 29.2%
  • Organic sales growth (non-GAAP) of 28.1%
• Raised FY 2021 EPS guidance ranges
  
  • Reported EPS range now $8.50 to $8.80 (previously $8.25 to $8.65)
  • Adjusted EPS range now $8.65 to $8.95 (previously $8.40 to $8.80)
• Announced agreement to acquire Vestcom for $1.45 billion

Glendale, Calif. – Avery Dennison Corporation today announced preliminary, unaudited results for its second quarter ended July 3, 2021. 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.

“We delivered another strong quarter, ahead of expectations, raised our outlook for the second half, and announced an agreement to acquire Vestcom that will build upon and expand RBIS’ strengths,” said Mitch Butier, Avery Dennison president and CEO. “Revenue was up 28 percent organically compared to prior year and up 11 percent compared to 2019, as RBIS and IHM rebounded significantly from prior year lows and strength in LGM continued.

“Our strong performance comes at a time when supply chains remain tight, inflation persists and the global health crisis continues. The current environment reinforces our determination to remain vigilant in ensuring the health and well-being of our employees, delivering for our customers, supporting our communities, and creating value for our shareholders.

“Vestcom, a high growth, high margin business, provides retail shelf-edge pricing and branding labeling solutions. The acquisition will further expand our position in high value categories while adding channel access and data management capabilities to RBIS that have the potential to further advance our Intelligent Labels strategy,” added Butier.

“Once again, I want to thank our entire team for their ongoing efforts to keep one another safe while continuing to deliver for all our stakeholders during this challenging period.”

Operational/Market Update
Uncertainty surrounding the global health crisis remains elevated as many parts of the world are experiencing a surge in COVID-19 cases, with the greatest impact to the company being in South Asia, particularly RBIS. The safety and well-being of employees has been and will continue to be the company’s top priority. The company has taken steps to ensure employee safety, quickly implementing world-class safety protocols and continuing to adapt them as the pandemic evolves.

The company continues to actively manage through a dynamic supply and demand environment. Demand across the majority of businesses and regions remains very strong, while raw materials, freight and labor availability continue to be constrained. The company is leveraging its global scale and working closely with customers and suppliers to minimize disruptions. Inflation remains persistent and pricing and material re-engineering actions are being implemented to offset higher costs.

Second Quarter 2021 Results by Segment

Label and Graphic Materials
Reported sales increased 25% to $1.4 billion. Compared to prior year, sales were up 17% ex. currency (up 11% vs. 2019) and up 16% on an organic basis (up 11% vs. 2019).

Label and Packaging Materials sales were up approximately 12% from prior year on an organic basis, with strong growth in both the high value product categories and the base business.

Sales increased by approximately 49% organically in the combined Graphics and Reflective Solutions businesses.

On an organic basis, sales were up high-single digits in North America, up mid-teens in Western Europe, and up approximately 20% in emerging markets.

Reported operating margin increased 410 basis points to 16.6%. Adjusted operating margin decreased 30 basis points to 14.5% driven by the net impact of pricing and raw material costs and higher employee-related costs, partially offset by higher volume/mix.

Retail Branding and Information Solutions
Reported sales increased 80% to $529 million. Compared to prior year, sales were up 73% ex. currency (up 25% vs. 2019) and up 72% on an organic basis (up 14% vs. 2019), reflecting strong growth in both the high value categories and the base business.

Intelligent Labels was up approximately 65% organically.
Reported operating margin increased 1160 basis points to 8.0%. Adjusted operating margin increased 1240 basis points to 13.1% as the benefits from higher volume and productivity more than offset the headwind from prior year temporary cost reduction actions, higher employee-related costs and growth investments.

Industrial and Healthcare Materials
Reported sales increased 49% to $197 million. Compared to prior year, sales were up 39% ex. currency (up 11% vs. 2019) and up 33% on an organic basis (up 6% vs. 2019), reflecting an approximately 60% increase in industrial categories and a high-single digit decline in healthcare categories.

Reported operating margin increased 580 basis points to 11.5%. Adjusted operating margin increased 490 basis points to 11.7% as the benefit from higher volume/mix more than offset the headwind from prior year temporary cost reduction actions and higher employee-related costs.

Other

Balance Sheet, Liquidity, and Capital Deployment
The company’s balance sheet remains strong, with ample capacity. Net debt to adjusted EBITDA (non-GAAP) was 1.3 at the end of the second quarter, below its long-term target.

In the first half, the company returned $203 million in cash to shareholders through a combination of share repurchases and dividends, up from $142 million for the same period last year.

The company repurchased 0.2 million shares in the second quarter at an aggregate cost of $39 million. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down by 0.1 million compared to the same time last year.

In May 2021, the Brazilian Federal Supreme Court ruled on the recovery of certain indirect taxes that the company had paid in previous years. As a result of the ruling, the company recorded a gain of $29.1 million that it now expects to use to offset its future taxes in Brazil.

The company recorded a contingent liability during the quarter in the amount of $26.6 million based on a jury verdict issued in May 2021 in the matter of ADASA Inc. vs. Avery Dennison Corporation. The company will appeal the decision and believes it has meritorious defenses to present during the appeal process with an anticipated favorable final outcome.

The company announced today that it has signed an agreement to acquire Vestcom for $1.45 billion, subject to certain closing and post-closing adjustments. Vestcom is a privately held company that provides shelf-edge pricing, productivity and consumer engagement solutions for retailers and consumer packaged goods companies. The acquisition is expected to close in Q3 2021, subject to regulatory approvals and other customary closing conditions. The company plans to fund the acquisition with cash and debt. For more information on Vestcom and the transaction, see full press release here and the slides accompanying today’s release.

Income Taxes

The company’s second quarter effective tax rate was 27.6%. The adjusted (non-GAAP) tax rate for the quarter was 25.6%, while the company’s current expectation for its full year adjusted tax rate is 25.3%.

Cost Reduction Actions

In the second quarter, the company realized approximately $17 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $2 million, the vast majority of which represents cash charges.

Outlook

In its supplemental presentation materials, “Second Quarter 2021 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2021 financial results. Based on the factors listed and other assumptions, the company has raised its guidance range for 2021 reported earnings per share from $8.25 to $8.65 to $8.50 to $8.80. Excluding an estimated $0.15 per share related to restructuring charges and other items, the company’s guidance range for adjusted earnings per share has been raised from $8.40 to $8.80 to $8.65 to $8.95.

Note: 2021 estimates do not include the impact of Vestcom; transaction is expected to close in Q3 subject to regulatory approvals and other customary closing conditions

For more details on the company’s results, see the summary tables accompanying this news release, as well as the supplemental presentation materials, “Second Quarter 2021 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.