PASADENA, Calif. - Avery Dennison Corporation today announced preliminary, unaudited results for its second quarter 2013 ended June 29, 2013. 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. Results reflect classification of Office and Consumer Products (OCP) and Designed and Engineered Solutions (DES) as discontinued operations.
"I'm pleased to report another quarter of strong earnings growth, driven by restructuring and other productivity actions we initiated last year," said Dean Scarborough, Avery Dennison chairman, president and CEO. "Pressure-sensitive Materials continued to benefit from its leadership position in emerging markets, growth through innovation, and significant productivity gains. Retail Branding and Information Solutions delivered its fourth consecutive quarter of strong sales growth with continued margin expansion in the first half.
"We passed two significant milestones, delivering $105 million of restructuring savings and completing the sale of Office and Consumer Products and Designed and Engineered Solutions," Scarborough added. "We are committed to achieving our earnings and free cash flow targets, and to returning the vast majority of that cash to shareholders. In the first half, we distributed over $200 million to shareholders through dividends and the repurchase of 3.5 million shares."
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 2013 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 2013 Results by Segment
All references to sales reflect comparisons on an organic basis, which exclude the estimated impact of currency translation, product line exits, 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.
Pressure-sensitive Materials (PSM)
- PSM segment sales increased approximately 4 percent. Within the segment, Label and Packaging Materials sales increased mid-single digits. Combined sales for Graphics, Reflective, and Performance Tapes increased low single digits.
- Operating margin improved 180 basis points to 10.5 percent as the benefit of productivity initiatives, higher volume, and lower restructuring costs more than offset the impact of changes in product mix. Adjusted operating margin improved 130 basis points.
Retail Branding and Information Solutions (RBIS)
- RBIS segment sales increased approximately 8 percent driven by increased demand from U.S. and European retailers and brands.
- Operating margin declined 20 basis points to 5.6 percent due to higher restructuring costs. Adjusted operating margin improved 110 basis points as the benefit of productivity initiatives and higher volume more than offset higher employee-related expenses.
The company repurchased 3.5 million shares in the first six months of 2013 at an aggregate cost of $149 million.
On July 1, 2013, the company completed the sale of its OCP and DES businesses to CCL Industries Inc. for$500 million, subject to customary closing adjustments expected to be finalized by October 1, 2013.
The company expects net proceeds from the sale of approximately $400 million, which it intends to use to repurchase shares and reduce indebtedness, including an additional pension plan contribution.
Earnings from OCP and DES, and certain costs associated with these divestitures, are reported as income or loss from discontinued operations (net of tax) in the preliminary, unaudited consolidated statements of income. Net income (loss) per share from discontinued operations decreased from $0.15 to $(0.02).
The second quarter effective tax rate was 35 percent. The year-to-date adjusted tax rate was 34 percent, comparable to prior year.
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 achieved annualized savings of $105 million from this program. To implement these actions, the company incurred restructuring costs, net of gain on sale of assets, of approximately $4 million in the first half of 2013. The company expects to incur restructuring costs, net of gain on sale of assets, of $15 million in 2013.
In its supplemental presentation materials, “Second Quarter 2013 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 now expects 2013 earnings per share from continuing operations of $2.40 to $2.60. Excluding an estimated $0.10 per share for restructuring costs and other items, net of gain on sale of assets, the company expects adjusted (non-GAAP) earnings per share from continuing operations of $2.50 to $2.70. The company expects free cash flow from continuing operations in the range of$275 million to $315 million.