Avery Dennison Announces Second Quarter 2010 Results

July 28, 2010 by timbercommunity

"Avery Dennison delivered a strong second quarter, with double-digit sales growth and solid margin expansion," said Dean A. Scarborough, Avery Dennison chairman, president and CEO. "I'm especially pleased with the improved performance of Retail Information Services, which expanded operating margin above pre-recession levels. Our core pressure-sensitive materials businesses had solid results, including double-digit sales growth in all regions, and our investments in marketing have enabled us to convert more brand owners to pressure-sensitive solutions from other labeling technologies.

"The second half of the year will be more challenging than the second quarter, which is traditionally our strongest," Scarborough said. "While we expect solid second-half revenue growth, margins will come under pressure from rising raw material costs and Office Products' investments in innovation and demand creation. At the same time, we are on track to exceed our original target for strong free cash flow.
"We are confident about our future," Scarborough said. "We have leadership positions in rapidly growing emerging markets, which continue to lead the global economic recovery. As the world's leading producer of RFID inlays, we're excited by the accelerating growth in demand for item-level retail tagging solutions and other applications. Our investments in developing branding and information solutions are starting to pay off in innovative products and solutions, better service and stronger customer relationships. We are well positioned for long-term profitable growth."

Pressure-sensitive Materials (PSM)
 

• Roll Materials sales grew mid-teens percent, reflecting strength in all regions. Sales grew low-teens percent in the Graphics and Reflective Products division.
• Operating margin increased due to higher volume and the benefits from productivity actions, partially offset by raw material inflation.

Retail Information Services (RIS)
 

• Sales growth in what is this segment's seasonally largest quarter reflected increased demand, due in part to significant inventory destocking that occurred among apparel retailers in the first half of 2009, as well as new programs with key brands and retailers.
• Operating margin expanded above pre-recession levels due to increased volume and the benefit of restructuring and other productivity initiatives.

Office and Consumer Products (OCP)
 

• The decline in sales reflected weak end-market demand.
• Operating margin declined due to increased investment in consumer promotions and marketing, as well as lower volume.

Other specialty converting businesses
 

• Sales growth primarily reflected increased demand for products for automotive applications, which was down sharply in the second quarter of 2009.
• The improvement in operating margin reflected increased volume and the benefit of restructuring and productivity actions, partially offset by raw material inflation.

Consolidated Items and Actions
 

• In the fourth quarter of 2008, the Company began a restructuring program to reduce costs across all segments of the business. In the second quarter of 2010, the Company delivered approximately $20 million in incremental savings from these actions, net of transition costs, and achieved its goal of $180 million in annualized savings.
• The effective (GAAP) tax rate was 33 percent in the second quarter. The adjusted year-to-date tax rate in the second quarter was 23 percent.

2010 Outlook
The Company has adjusted its previous guidance. In the Company's supplemental presentation materials, "Second Quarter 2010 Financial Review and Analysis," the Company provides a list of factors that it believes will contribute to its 2010 financial results. Based on the factors listed and other assumptions, the Company now expects reported revenue growth of 7 to 8 percent, adjusted (non-GAAP) Earnings Per Share of $2.60 to $2.80, and Free Cash Flow in 2010 of approximately $350 million.
Note: Throughout this release and the supplemental presentation materials, all calculations of amounts on a per share basis reflect fully-diluted shares outstanding.
Avery Dennison (NYSE:AVY) helps make brands more inspiring and the world more intelligent. For 75 years the company has been a global leader in pressure-sensitive technology and materials, retail branding and information solutions, and organization and identification products for offices and consumers. A FORTUNE 500 company with sales of $6 billion in 2009, Avery Dennison is based in Pasadena, California, and has employees in over 60 countries. For more information, visit .
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:
Certain statements contained in this document are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements and financial or other business targets are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to risks and uncertainties relating to investment in development activities and new production facilities; fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions; ability of the Company to generate sustained productivity improvement; successful integration of acquisitions; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems; successful installation of new or upgraded information technology systems; the financial condition and inventory strategies of customers; customer and supplier concentrations; changes in customer order patterns; loss of significant contract(s) or customer(s); timely development and market acceptance of new products; fluctuations in demand affecting sales to customers; collection of receivables from customers; impact of competitive products and pricing; selling prices; business mix shift; volatility of capital and credit markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; ability of the Company to obtain adequate financing arrangements and to maintain access to capital; fluctuations in interest and tax rates; fluctuations in pension, insurance and employee benefit costs; impact of legal proceedings; changes in tax laws and regulations; changes in governmental regulations; changes in political conditions; fluctuations in foreign currency exchange rates and other risks associated with foreign operations; worldwide and local economic conditions; impact of epidemiological events on the economy and the Company's customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.
The Company believes that the most significant risk factors that could affect its financial performance in the near-term include (1) the impact of economic conditions on underlying demand for the Company's products and on the carrying value of its assets; (2) the impact of competitors' actions, including pricing, expansion in key markets, and product offerings; (3) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume; and (4) the impact of changes in tax laws and regulations throughout the world.