PASADENA, Calif.--July 25, 2006-- Avery Dennison Corporation today reported net income of $112 million or $1.12 per share, compared with $89.4 million or $0.89 per share in the prior year. Second quarter 2006 results included an after-tax benefit of $15.6 million or $0.16 per share related to the tax effect of a divestiture that partially offset previously recognized losses from discontinued operations.
Second quarter 2006 earnings from continuing operations were $96.4 million or $0.96 per share, up 8 percent from $89.6 million or $0.89 per share in the prior year. In both years, results included restructuring and asset impairment charges and other items. Excluding these items, second quarter earnings per share from continuing operations increased by 9 percent over the same quarter last year to $0.99. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".)
The increase in earnings reflected improvements in the Company's productivity that led to a higher gross profit margin and lower operating expense ratio. The Company also raised its estimate of annualized savings from restructuring efforts to $85 to $100 million by year-end, including the benefit of new productivity actions identified during the quarter.
Net sales for the second quarter were $1.41 billion, approximately even with the same quarter last year. Organic sales growth, which excludes the impact of acquisitions, divestitures and foreign currency translation, was 2 percent. This increase was attributable to both unit volume growth and positive changes in pricing and product mix.
"We continued to make steady progress in reaching our goals this quarter, and in developing new sources of future top line growth and productivity improvement," said Dean A. Scarborough, president and chief executive officer of Avery Dennison. "We remain committed to the pursuit of a balanced long-term strategy to drive both solid sales growth and continued margin expansion.
"Underlying unit growth improved sequentially for the roll materials business in North America, as customers continue to value our service and product advantages," Scarborough added. "We expect volume growth to accelerate in the second half of the year.
"I am particularly encouraged by the continued strength of the materials operations in the emerging markets of Asia, Latin America, and Eastern Europe," Scarborough said. "Retail Information Services also delivered solid sales growth and outstanding margin improvement. We expect these businesses, as well as radio frequency identification and other important Horizon initiatives, to play key roles in driving top line growth and improved profitability."
Additional Second Quarter Financial Highlights From Continuing Operations
(For a more detailed presentation of the Company's results for the quarter, see Second Quarter 2006 Financial Review and Analysis, posted at the Company's Web site at www.investors.averydennison.com.)
* Core unit volume grew approximately 1 percent compared with the prior year. However, core unit volume growth was an estimated 2.5 percent when adjusted for a shift in the timing of back-to-school orders, the decision to exit certain private label businesses and other comparability considerations. Changes in pricing and product mix contributed approximately 1 point to top line growth.
* Excluding restructuring and asset impairment charges and other items, operating margin improved by 60 basis points. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".)
* The recognition of stock option expense added approximately $4 million of pre-tax cost compared with the prior year, which reduced operating margin by 30 basis points and reduced after-tax earnings by $0.03 per share.
* The effective tax rate for continuing operations was 22.3 percent, compared to the prior year at 22.6 percent, in line with the Company's expectations.
(See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information" for adjusted operating margins included below.)
* Pressure-sensitive Materials reported sales of $810 million, up 1 percent from the prior year. Organic sales growth for the segment was 2 percent. Operating margin, before restructuring and asset impairment charges, increased 30 basis points to 9.8 percent.
* Office and Consumer Products sales declined 12 percent to $265 million. Half of the decline in sales was due to the previously announced divestiture of low-margin filing product lines in Europe. The balance of the decline was due in equal measure to the decision to exit certain low-margin private label business and to a shift in the timing of back-to-school orders compared to last year, which is expected to benefit third quarter comparisons. Operating margin, before restructuring charges and other items, declined 50 basis points to 16.5 percent, due to transition costs associated with the divestiture, which more than offset productivity savings.
* Retail Information Services sales grew 6 percent to $181 million on both a reported and organic basis. Operating margin, before restructuring charges, increased 240 basis points to 12.7 percent.
Outlook for the Year
Reflecting second quarter results, Avery Dennison adjusted its full year guidance for earnings from continuing operations to a range of $3.60 to $3.80 per share before charges associated with ongoing restructuring efforts. The Company previously expected earnings from continuing operations to be in the range of $3.55 to $3.80 per share before restructuring and asset impairment charges. The Company now expects these charges will reduce full year earnings by $0.14 to $0.17 per share, up from the previous estimate of $0.09 to $0.13 per share.
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