Press release from the issuing company
Glendale, Calif. – Avery Dennison Corporation today announced preliminary, unaudited results for its second quarter ended June 29, 2019. All non-GAAP financial measures referenced in this document are defined and reconciled to GAAP in the attached pages A-4 through A-8. Unless otherwise indicated, comparisons are to the same period in the prior year.
“Our Q2 earnings were in line with our expectations, as we more than offset softer-than-expected organic growth with accelerated productivity actions,” said Mitch Butier, President and CEO. “High value categories continue to grow faster than the base business, which, combined with our relentless focus on productivity, enable margin expansion even in a slower growth environment.
“Organic growth in Label and Graphic Materials remained soft reflecting lower volume, while profitability was strong. Retail Branding and Information Solutions delivered solid organic growth, driven by continued strength in RFID, with significant margin expansion. Likewise, IHM continued to deliver strong margin improvement, despite flat organic growth.
“We are reaffirming the midpoint of our previous guidance for 2019 earnings per share, with organic growth improving modestly over the balance of the year, along with continued margin expansion,” added Butier. “Once again, our ongoing confidence in our ability to achieve our guidance and long-term targets reflects the resilience of our business and ability of our team to adapt to changing market conditions.”
Second Quarter 2019 Results by Segment
Label and Graphic Materials
Reported sales declined 4.1 percent; on an organic basis, sales grew 0.9 percent, as prior year pricing actions more than offset a modest decline in volume. On an organic basis, sales in high value categories increased at a mid-single digit rate across the segment, were flat in Label and Packaging Materials, and were up low-single digits in the combined Graphics and Reflective Solutions businesses.
Reported operating margin increased 420 basis points to 13.4 percent, reflecting lower restructuring costs and benefit from productivity actions, including material re-engineering, partially offset by currency-related headwinds and the impact of lower volume. Adjusted operating margin was flat to prior year at 13.8 percent.
Retail Branding and Information Solutions
Reported sales increased 0.4 percent; on an organic basis, sales grew 4.4 percent, driven primarily by continued strength in sales of radio frequency identification (RFID) solutions, which increased more than 20 percent.
Reported operating margin increased 110 basis points to 12.0 percent, as productivity and higher volume more than offset higher employee-related costs and growth-related investments. Adjusted operating margin increased 130 basis points to 12.5 percent.
Industrial and Healthcare Materials
Reported sales declined 5.0 percent; on an organic basis, sales declined 0.1 percent, as a low-single digit decline in industrial categories was largely offset by a mid-single digit increase in healthcare categories.
Reported operating margin increased 40 basis points to 9.6 percent as productivity and a net benefit of pricing and raw material costs more than offset higher restructuring and employee-related costs. Adjusted operating margin increased 120 basis points to 10.5 percent.
Other
Share Repurchases / Equity Dilution
The company repurchased 0.3 million shares in the second quarter at an aggregate cost of $27.9 million. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down by 3.8 million compared to the same time last year.
In the first half, the company returned $209 million in cash to shareholders through a combination of share repurchases and dividends, up from $188 million for the same period last year.
Income Taxes
The company’s second quarter effective tax rate was 23.8 percent, compared to 31.4 percent in the prior year. The adjusted tax rate (non-GAAP) for the quarter was 25 percent, consistent with the company’s current expectation for its full year adjusted tax rate.
Cost Reduction Actions
In the second quarter, the company realized approximately $12 million in pretax savings from restructuring, net of transition costs, and incurred pretax restructuring charges of approximately $8 million, consisting primarily of cash costs related to severance.
Outlook
In its supplemental presentation materials, “Second Quarter 2019 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2019 financial results. Based on the factors listed and other assumptions, the company has reaffirmed the midpoint of its guidance for 2019 reported earnings per share, while tightening the range to $3.15 to $3.30.
Excluding an estimated $3.35 per share related to pension settlement charges, restructuring charges and other items, the midpoint of the company’s guidance for adjusted earnings per share is unchanged, while the range tightened to $6.50 to $6.65.
For more details on the company’s results, see the summary tables accompanying this news release, as well as the supplemental presentation materials, “Second Quarter Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.
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