PASADENA, Calif.--April 20, 2004-- Avery Dennison Corporation today reported first quarter diluted earnings per share of $0.52, compared with $0.71 per share for the first quarter of 2003. Excluding a previously announced acquisition-related restructuring charge in the quarter, first quarter 2004 earnings were $0.68 per share, exceeding the high end of the Company's earnings expectations for the quarter.
"Our better-than-expected sales and earnings in the first quarter of 2004 are a clear sign that our business is returning to our planned levels of growth," said Philip M. Neal, chairman and chief executive officer of Avery Dennison. "The Company's Horizons growth program is producing new innovations and generating sales in markets around the world, and at the same time, demand for existing products throughout many of our operations is continuing to improve. While our office products business did not reach targeted sales levels, we are aggressively taking actions to confront the challenges faced by this business."
Key results for the first quarter of 2004 include:
Earnings per share, on a diluted basis, were $0.52, compared with $0.71 per share in the same quarter a year ago. First quarter earnings include the negative impact of $0.16 per share resulting from a restructuring charge related to the Jackstadt integration. A positive impact from currency translation contributed approximately $0.04 per share to first quarter 2004 earnings, which was approximately $0.01 per share above the previously announced expectation for currency translation in the quarter. The benefit from currency translation was partially offset by a negative impact to operating profit from the devaluation of the U.K. pound against the Euro.
Net income was $52.6 million, which includes the negative effect of a pretax restructuring charge of approximately $21 million associated with the Jackstadt integration, compared with $70.8 million in the first quarter of 2003.
Reported sales from continuing operations grew 9.8 percent from prior-year levels, reaching $1.2 billion for the first quarter of 2004, compared with $1.1 billion in the first quarter of 2003, exceeding the Company's previously announced revenue growth expectation for the quarter. Approximately 75 percent of the revenue growth during the quarter is attributable to the positive impact of currency translation, primarily the Euro.
Core unit volume grew approximately 4.5 percent over the prior-year first quarter.
Operating margin, excluding the restructuring charge posted in the quarter, declined 110 basis points from the first quarter of 2003, as expected due to costs associated with manufacturing capacity expansion at two facilities in Europe, a challenging pricing environment in the pressure-sensitive roll materials business and the impact of the U.K. pound devaluation. (See below, "Reconciliation of GAAP to Non-GAAP Measures"). Operating margin, excluding the restructuring charge, increased 30 basis points from the fourth quarter of 2003, reflecting the positive impact of improved worldwide business conditions and ongoing productivity improvement efforts.
The tax rate for the first quarter was 27.5 percent, unchanged from the fourth quarter of 2003 and consistent with the Company's projections.
The Company's Pressure-sensitive Adhesives and Materials sector reported sales of $846 million, reflecting growth of approximately 17 percent over the first quarter of 2003. Approximately 60 percent of the sector's revenue growth is attributable to the impact of currency translation, primarily the Euro. The North American pressure-sensitive roll materials business posted strong results in the quarter with mid single-digit sales growth, excluding the impact of currency translation, reflecting solid improvement over the rate of growth experienced in the fourth quarter of 2003. Before the effect of currency translation, sales in the European pressure-sensitive roll materials business increased at a mid single-digit rate, primarily driven by growth of more than 20 percent in Eastern European markets.
The roll materials business in Asia continued to report extremely robust results, with sales growth in China of more than 50 percent over the year-ago first quarter. The Latin American pressure-sensitive roll materials business grew at a double-digit rate, before the impact of currency translation. The worldwide specialty tapes business continued to report double-digit sales growth, while the worldwide graphics and reflective materials business reported improved mid single-digit sales growth, excluding the impact of currency translation.
Operating margin, excluding the restructuring charge, for the Pressure-sensitive Adhesives and Materials sector declined 20 basis points compared with the prior-year first quarter, and improved 180 basis points over the fourth quarter of 2003. (See below, "Reconciliation of GAAP to Non-GAAP Supplementary Information"). The sequential expansion in operating margin is attributable to higher sales and productivity improvements in the sector. The Company expects significant improvement in operating margin for the sector during the second half of the year due to cost savings associated with the closure of two European roll materials manufacturing plants.
The Consumer and Converted Products sector reported sales of $442 million, reflecting a decline of approximately 4 percent over the prior-year first quarter. The revenue decline for the sector was partially offset by a positive contribution from currency translation of 4 points during the quarter.
Sales in the global office products business declined approximately 12 percent compared with the year-ago first quarter, excluding the impact of currency translation. The decline is attributable to a previously announced share loss and increased fourth quarter buy-forwards by office products customers, as well as other inventory reductions, the discontinuation of a small line of paper products and weak market conditions. The Company anticipates stronger sales for its office products business in the second half of 2004, driven by share gains at several key accounts and new product introductions. The retail information services business reported solid results for the first quarter, with an increase in demand in the final month of the period.
Operating margin, excluding the restructuring charge, for the Consumer and Converted Products sector declined 270 basis points compared with the year-ago first quarter and 120 basis points compared with the fourth quarter of 2003. The decline is due to reduced volume and the negative impact of price and mix, partially offset by productivity improvements. The Company expects significant improvement in operating margin for the sector by the end of 2004 as a result of increased sales and cost reductions.
Avery Dennison announced that for the second quarter of 2004, it expects earnings to be in the range of $0.70 to $0.75 per share, excluding a restructuring charge to earnings in the quarter related to the completion of integration activities for the Jackstadt acquisition. Based on first quarter 2004 results, Avery Dennison is updating its earnings-per-share guidance for the full year to $2.80 to $3.10 per share, excluding restructuring charges, from its previously announced expectation of $2.75 to $3.10 per share, excluding restructuring charges.
"Based on our positive first quarter results, we are confident that our skilled execution of our growth and productivity strategies will deliver a successful year for Avery Dennison," said Neal. "We are well positioned to take advantage of the expected continued improvement in global economic conditions.
"Our commitment to top-line growth is as strong as ever, as our research and development activities are focused on creating breakthrough technologies related to radio frequency identification and other applications," said Neal. "We are steadily filling an active pipeline with new products and industry-leading services in markets that are positioned for excellent, long-term growth."
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