GLENDALE, Calif. - Avery Dennison Corporation today announced preliminary, unaudited results for its fourth quarter and year ended January 2, 2016. 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.
“I’m very pleased to report another year of excellent progress toward our long-term goals, and I want to thank our employees for their contributions to our ongoing success,” said Dean Scarborough, Avery Dennison chairman and CEO. “In 2015, we delivered strong organic sales growth and double-digit growth in adjusted earnings per share, in spite of challenging economic conditions in many parts of the world and significant headwinds from currency translation.
“Pressure-sensitive Materials delivered its fourth consecutive year of strong volume growth, while significantly improving its profitability and return on capital,” Scarborough added. “Retail Branding and Information Solutions began executing a new strategy in 2015 to accelerate growth in the core business through a more competitive, faster, and simpler business model, and made solid progress against its long-term financial goals during the back half of the year.
“In 2016, we expect to deliver solid organic sales growth and further expand our margins and return on capital, notwithstanding continued headwinds from currency translation and an uncertain economic climate, with continued return of cash to shareholders,” said Scarborough. “We remain confident that the consistent execution of our strategies will enable us to meet our long-term goals for superior value creation through a balance of profitable growth and capital discipline."
For more details on the company’s results, see the summary table accompanying this news release, as well as the supplemental presentation materials, “Fourth Quarter and Full Year 2015 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.
Fourth Quarter 2015 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, and, where applicable, the extra week in the prior fiscal year. Adjusted operating margin refers to income before interest expense and taxes, excluding restructuring costs and other items, as a percentage of sales.
Pressure-sensitive Materials (PSM)
- PSM sales increased approximately 7 percent. Within the segment, sales in both Label and Packaging Materials and combined Graphics and Performance Tapes increased mid-single digits.
- Operating margin improved 60 basis points to 10.7 percent as the impact of productivity initiatives more than offset higher employee-related costs. Adjusted operating margin improved 40 basis points.
Retail Branding and Information Solutions (RBIS)
- RBIS sales increased approximately 8 percent.
- Operating margin declined 140 basis points to 4.1 percent driven by higher restructuring charges. Adjusted operating margin increased 160 basis points as the impact of productivity initiatives more than offset higher employee-related costs.
The company repurchased 1.9 million shares in the fourth quarter of 2015 at an aggregate cost of $124 million. During full year 2015, the company repurchased 3.9 million shares at an aggregate cost of $232 million.
The 2015 full year tax rate was 33 percent, which was below our previous expectation of 34 percent, primarily due to benefits associated with the resolution of foreign tax examinations during the fourth quarter. The tax rate in 2016 is expected to be in the low to mid-thirty percent range.
Cost Reduction Actions
In 2015, the company realized approximately $71 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of $59 million, $53 million of which represented cash charges.
Pension Liability Settlement Charges
As part of our long-term strategy to reduce financial volatility associated with our frozen defined benefit pension plan for U.S. employees, we offered eligible former employees the option to receive their benefits immediately as either a lump sum payment or an annuity, rather than waiting until they are retirement eligible under the terms of the plan. Satisfaction of this offer will be made out of existing plan assets during the first half of this year. No additional contributions to the plan are required to complete the offering.
While the ultimate amount is not yet known, we anticipate that approximately $70 million of the liability will be settled. Based on pension accounting guidance, we anticipate a one-time, non-cash charge of approximately $40 million, or approximately $0.30 per share, in the first half of this year. This action is not expected to change required contributions to the pension plan over the next several years. We do not anticipate making any contributions to the U.S. pension plan in 2016, and the amount of contributions to foreign plans is expected to be similar to recent years.
In its supplemental presentation materials, “Fourth Quarter and Full Year 2015 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2016 financial results. Based on the factors listed and other assumptions, the company expects 2016 earnings per share of $3.15 to $3.35.
Excluding an estimated $0.20 per share for restructuring costs and other items, and an estimated $0.30 per share for non-cash charges associated with the settlement of the pension obligations described above, the company expects adjusted (non-GAAP) earnings per share of $3.65 to $3.85.
Note: Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.