GLENDALE, Calif. - Avery Dennison Corporation today announced preliminary, unaudited results for its second quarter ended July 1, 2017. 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 continued to make good progress against our strategic and financial objectives in the second quarter," said Mitch Butier, Avery Dennison President and CEO. "LGM generated strong profitability despite a short-term moderation in organic growth; RBIS had a great quarter, with accelerated sales growth and margin expansion as our multi-year transformation delivers; and IHM continues to make progress against its strategic priorities, including the completion of two acquisitions.
“We have raised our outlook for full-year earnings per share, reflecting continued strong operating performance and a reduction in the tax rate," said Butier. "We continue to 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, “Second Quarter 2017 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SECon Form 8-K.
Second Quarter 2017 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.
Label and Graphic Materials
- Reported sales increased 5.5 percent; on an organic basis, sales grew an estimated 2.3 percent driven by solid growth in high value categories, with modest growth in the base business.
- Operating margin improved 20 basis points to 13.2 percent. Adjusted operating margin of 13.6 percent was flat as the benefits from productivity initiatives and increased volume were offset by higher employee-related costs and the modest net impact of pricing and raw material costs.
Retail Branding and Information Solutions
- Reported sales increased 4.6 percent; on an organic basis, sales grew an estimated 5.8 percent driven by strength in RFID and the base business.
- Operating margin improved 110 basis points to 7.5 percent. Adjusted operating margin improved 120 basis points to 8.3 percent driven by productivity and strong volume, partially offset by higher employee-related costs.
Industrial and Healthcare Materials
- Reported sales increased 8.7 percent; sales were essentially flat on an organic basis. Sales in industrial categories increased low-double digits on an organic basis, offsetting the anticipated decline in healthcare categories.
- Operating margin declined 580 basis points to 8.5 percent. Adjusted operating margin declined 400 basis points to 10.4 percent driven primarily by the impact of the decline in healthcare categories.
- The company’s acquisitions of Yongle Tape and Finesse Medical closed during the second quarter and the integrations are on track.
Share Repurchases / Equity Dilution from Long-Term Incentives
The company repurchased 0.4 million shares in the second quarter at an aggregate cost of $36 million. Net of dilution, the company’s share count decreased 0.5 million in the quarter. The cost of repurchases, net of proceeds from stock option exercises, was $35 million.
The second quarter effective tax rate was 19.1 percent, comparable to prior year. The adjusted tax rate for the quarter was approximately 26 percent, as the company now anticipates a full year effective tax rate of approximately 28 percent.
Cost Reduction Actions
In the second quarter, the company realized approximately $15 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $8 million, nearly all of which represents cash charges.
In its supplemental presentation materials, “Second Quarter 2017 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2017 financial results. Based on the factors listed and other assumptions, the company now expects 2017 reported earnings per share of $4.45 to $4.60. Excluding an estimated $0.30 per share for restructuring charges and other items, the company now expects adjusted earnings per share (non-GAAP) of $4.75 to $4.90.