GLENDALE, Calif. - Avery Dennison Corporation today announced preliminary, unaudited results for its third quarter ended September 30, 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 delivered a strong quarter, with earnings above our expectations,” said Mitch Butier, Avery Dennison President and CEO. “LGM’s organic growth rate rebounded, as expected, and margin remained strong; RBIS delivered another great quarter, with continued strong sales growth and margin expansion; and IHM delivered solid organic sales growth while integrating two recently completed acquisitions.
“We raised our guidance for full-year earnings per share, reflecting our better than expected operating results,” said Butier. “The effective execution of our strategies continues to enhance our competitive advantage, driving profitable growth and higher 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 2017 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 2017 Results by Segment
Sales change ex. currency refers to the increase or decrease in sales excluding the estimated impact of currency translation. The estimated impact of currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations. 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 8.7 percent. Sales excluding currency increased 6.9 percent; on an organic basis, sales grew an estimated 5.1 percent. Sales increased mid-single digits on an organic basis in Label and Packaging Materials, as well as the combined Graphics and Reflective Solutions businesses.
- Reported operating margin improved 30 basis points to 12.8 percent as the benefits of higher volume and productivity, were partially offset by higher employee-related costs and the net impact of pricing and raw material costs. Adjusted operating margin improved 40 basis points to 13.1 percent.
Retail Branding and Information Solutions
- Reported sales increased 6.3 percent; on an organic basis, sales grew an estimated 6.5 percent driven by strength in both RFID and the base business.
- Reported operating margin improved 20 basis points to 6.8 percent as the benefits of increased volume, productivity, and reduced amortization expense, were partially offset by higher employee-related costs and restructuring charges. Adjusted operating margin improved 170 basis points to 8.7 percent.
Industrial and Healthcare Materials
- Reported sales increased 51.8 percent. Sales excluding currency increased 50.3 percent; on an organic basis, sales grew an estimated 3.5 percent. Sales increased mid-single digits on an organic basis in both industrial and healthcare categories.
- Reported operating margin declined 290 basis points to 8.2 percent driven primarily by the impact of recent acquisitions. Adjusted operating margin declined 320 basis points to 8.3 percent.
Share Repurchases / Equity Dilution from Long-Term Incentives
The company repurchased 0.4 million shares in the third quarter at an aggregate cost of $35 million. Net of dilution, the company’s share count decreased 0.1 million in the quarter.
The third quarter effective tax rate was 26.2 percent, down from 30.4 percent in the prior year. The adjusted tax rate for the quarter was 28 percent, consistent with the company’s expectation for the full year tax rate.
Cost Reduction Actions
In the third quarter, the company realized approximately $14 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $10 million, nearly all of which represented cash charges.
In its supplemental presentation materials, “Third 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 $4.60 to $4.65. Excluding an estimated $0.30 per share for restructuring charges and other items, the company now expects adjusted earnings per share (non-GAAP) of $4.90 to $4.95.