Avery Dennison Corporation today announced preliminary, unaudited second quarter 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.

“Second-quarter results were in line with our expectations, and we are on track for full-year earnings growth and free cash flow within the ranges of our guidance,” said Dean Scarborough, Avery Dennison chairman, president and CEO. “We continued to deliver on our commitment to return more cash to shareholders, repurchasing more than two million shares during the quarter.

“We are aggressively implementing the next phase of our restructuring initiative to help us deliver on our financial targets for double-digit earnings growth and higher returns,” Scarborough said. “Our near-term target is to achieve more than $100 million in annualized savings by mid-2013. The leaner cost structure that will result will enhance our overall competitive position and strengthen our ability to increase returns even in an uncertain economic environment.”

For more details on the company’s results, see the summary table accompanying this news release, as well as the supplemental presentation materials, “Second Quarter 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.

Second 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 (non-GAAP) refers to earnings before interest expense and taxes, excluding restructuring costs and other items, as a percentage of sales.

Pressure-sensitive Materials (PSM)

• Label and Packaging Materials sales increased mid-single digits compared to prior year. Graphics and Reflective Solutions sales declined low single digits compared to prior year.
• Operating margin declined 20 basis points to 8.4% due to higher restructuring costs. Adjusted operating margin improved 10 basis points as the benefit from higher volume more than offset higher employee-related expenses, including incentive compensation.

Retail Branding and Information Solutions (RBIS)

• Consistent with recent trends, sales were flat, reflecting caution from retailers and brands in the U.S. and Europe.
• Operating margin declined 150 basis points to 4.8% due to wage inflation, partially offset by productivity initiatives. Adjusted operating margin declined 160 basis points.

Other specialty converting businesses

• Sales increased modestly due to increased volume.
• Operating margin improved 50 basis points to 2.9% as the impact of higher volume and productivity initiatives more than offset higher employee-related expenses and restructuring costs. Adjusted operating margin improved 80 basis points.

Other

Share Repurchase
The company repurchased 2.4 million shares during the second quarter at an aggregate cost of $70 million. Year-to-date through the end of the second quarter, the company repurchased 4.8 million shares at an aggregate cost of$142 million.

Results of Discontinued Operations
Due to the company’s pending divestiture of its Office and Consumer Products business (“OCP”), earnings from OCP and certain costs associated with the transaction are reported as income or loss from discontinued operations (net of tax) in the consolidated income statement.

Earnings per share from discontinued operations declined from $0.19 to $0.13. Adjusted earnings per share from discontinued operations declined from $0.18 to $0.16.

The company continues to expect the sale of OCP to be completed in the second half of 2012.

Income Taxes
The second quarter effective tax rate was 33.4 percent. The year-to-date adjusted tax rate for the second quarter increased from 29.3 to 34.1 percent, in line with expectations and the full year 2011 rate.

Cost Reduction Actions
In the first half of 2012, the company began a restructuring program expected to be completed by mid-2013 that will reduce costs across all segments of the business. The company currently anticipates more than $100 million in annualized savings from this program. To implement these actions, the company estimates that it will incur approximately $55 million in restructuring costs in 2012, and approximately $25 million in restructuring costs in 2013.

Outlook
In the company’s supplemental presentation materials, “Second Quarter 2012 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2012 financial results. Based on the factors listed and other assumptions, the company is narrowing its previous guidance of 2012 earnings per share from continuing operations to $1.55 to $1.70 and free cash flow from continuing operations to $280 million to $310 million. Excluding an estimated $0.35 per share for restructuring costs and other items, the company expects adjusted (non-GAAP) earnings per share from continuing operations of $1.90 to $2.05.

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