GLENDALE, Calif. - Avery Dennison Corporation today announced preliminary, unaudited results for its third quarter ended October 1, 2016. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, comparisons are to the same period in the prior year.
“We delivered another solid quarter, with EPS above our expectations,” said Mitch Butier, Avery Dennison president and CEO. “PSM continues to deliver, with strong emerging market growth and ongoing operational excellence worldwide. RBIS is making progress with its business model transformation; however, revenue growth and margin are short of our expectations amidst a challenging retail apparel environment.
“Overall, our outlook has improved for full year earnings per share by ten cents,” Butier added. “The effective execution of our strategies continues to enhance our competitive advantage, while driving profitable growth and improving returns."
For more details on the company’s results, see the summary table accompanying this news release, as well as the supplemental presentation materials, “Third Quarter 2016 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.
Third Quarter 2016 Results by Segment
Organic sales change refers to the increase or decrease in sales excluding the estimated impact of currency translation, product line exits, and acquisitions and divestitures. Adjusted operating margin refers to income before interest expense and taxes, excluding restructuring charges and other items, as a percentage of sales.
Pressure-sensitive Materials (PSM)
- PSM reported sales increased approximately 4 percent; on an organic basis, sales grew approximately 3 percent. Within the segment, sales for the Label and Packaging Materials business grew at a mid-single digit rate on an organic basis. Sales for the combined Graphics and Performance Tapes businesses declined at a low-single digit rate on an organic basis, reflecting an expected program loss in Performance Tapes.
- Operating margin improved 30 basis points to 12.3 percent as the benefit of productivity initiatives and increased volume more than offset the net impact of price and raw material input costs and unfavorable mix. Adjusted operating margin improved 50 basis points.
Retail Branding and Information Solutions (RBIS)
- RBIS reported sales increased 1 percent; on an organic basis, sales grew approximately 2 percent.
- Operating margin improved 90 basis points to 7.7 percent primarily due to the benefit of lower restructuring charges. Adjusted operating margin improved 20 basis points as the net savings associated with the business model transformation and higher volume were largely offset by higher employee-related costs.
Vancive Medical Technologies
- Sales decline and modest operating loss for the quarter were in line with expectations.
Share Repurchases / Equity Dilution from Long-Term Incentives
During the first nine months of 2016, the company repurchased 2.7 million shares at an aggregate cost of $182 million. Net of dilution, the company reduced its share count by 1.0 million. The cost of repurchases, net of proceeds from stock option exercises, was $118 million.
The third quarter effective tax rate was approximately 30 percent, comparable to prior year. The adjusted tax rate for the third quarter was approximately 31 percent, as the company now anticipates a full year effective tax rate of approximately 33 percent, comparable to prior year and consistent with the assumption reflected in our guidance of a rate in the low to mid-thirty percent range.
Cost Reduction Actions
In the third quarter, the company realized approximately $21 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $3 million.
In its supplemental presentation materials, “Third Quarter 2016 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 now expects 2016 earnings per share of $3.50 to $3.55. Excluding an estimated $0.15 per share for restructuring charges and other items, and $0.30 per share for a non-cash charge to settle certain U.S. pension obligations in the second quarter, the company now expects adjusted earnings per share (non-GAAP) of $3.95 to $4.00.