GLENDALE, Calif. - Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its first quarter ended April 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 are off to a strong start to the year, with solid top-line performance and double-digit earnings growth,” said Mitch Butier, Avery Dennison President and CEO. “Label and Graphic Materials delivered another strong quarter; Retail Branding and Information Solutions continues to drive volume growth and improved profitability; and, within Industrial and Healthcare Materials, solid growth in industrial categories mostly offset the anticipated decline in healthcare.
“Our consistent achievement of our financial targets, reflected in another consecutive quarter of strong earnings growth and increase to our guidance for the full year, reflects the resilience of our market positions, depth of talent in the company, and strategic foundations we’ve laid,” Butier added.
For more details on the company’s results, see the summary table accompanying this news release, as well as the supplemental presentation materials, “First 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.
First 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 7.6 percent; on an organic basis, sales grew an estimated 4.9 percent. Sales on an organic basis increased mid-single digits in Label and Packaging Materials and increased low-single digits in the combined Graphics and Reflective Solutions businesses.
- Operating margin of 12.5 percent was flat to prior year as the benefits of increased volume and productivity initiatives were offset by unfavorable mix and higher employee costs. Adjusted operating margin of 12.7 percent was flat to prior year.
Retail Branding and Information Solutions
- Reported sales increased 2.0 percent; on an organic basis, sales grew an estimated 2.9 percent.
- Operating margin improved 130 basis points to 7.3 percent as the benefits of productivity initiatives and increased volume were partially offset by increased employee costs. Adjusted operating margin improved 140 basis points to 8.3 percent.
Industrial and Healthcare Materials
- Reported sales increased 2.0 percent; sales declined an estimated 1.3 percent on an organic basis. Sales in industrial categories increased mid-single digits on an organic basis, mostly offsetting the anticipated decline in healthcare categories.
- Operating margin declined 270 basis points to 11.1 percent largely due to the expected decline in sales for healthcare categories. Adjusted operating margin declined 250 basis points to 11.5 percent.
- The company expects the previously announced acquisition of Yongle Tape to close in the middle of this year.
Other
Financing
In March, the company issued €500 million of 1.25% Senior Notes due 2025. The company used approximately €200 million of the net proceeds from the offering to repay commercial paper borrowings that were used to finance a portion of its acquisition of the European business of Mactac in August 2016 and plans to use the remainder for general corporate purposes, including other acquisitions.
Income Taxes
The first quarter effective tax rate was 17.4 percent, lower than prior year due to the company’s adoption of Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which requires that all tax effects related to share-based payments at settlement or expiration be recognized through the income statement. The adjusted tax rate for the first quarter was 30 percent, consistent with the company’s expectation for the full year tax rate.
Share Repurchases / Equity Dilution from Long-Term Incentives
The company repurchased 0.5 million shares in the first quarter of 2017 at an aggregate cost of $35 million. Net of dilution, including the dilutive effect of the adoption of ASU 2016-09, the company’s share count increased 0.6 million in the first quarter. The cost of repurchases, net of proceeds from stock option exercises, was $18 million.
Cost Reduction Actions
In the first quarter, the company realized approximately $11 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $6 million, all of which represent cash charges.
Outlook
In its supplemental presentation materials, “First 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 $4.20 to $4.35. Excluding an estimated $0.30 per share for restructuring charges and other items, the company now expects adjusted earnings per share (non-GAAP) of $4.50 to $4.65.