Avery Dennison (AVY) Tops Q1 Earnings, Sales, Lifts '17 View

Avery Dennison Corporation (NYSE:AVY) reported adjusted earnings of $1.11 per share in first-quarter 2017, which climbed 18% from 94 cents recorded in the year-ago quarter. Earnings also beat the Zacks Consensus Estimate of $1.04.

Including restructuring costs and other items, earnings from continuing operations were $1.25 per share in the quarter compared with 98 cents recorded in the prior-year quarter.

Total revenue jumped around 6% to $1,572 million from $1,485.5 million in the year-earlier quarter. Moreover, revenues came above the Zacks Consensus Estimate of $1,530 million. On an organic basis, sales were up nearly 4% year over year.

Cost of sales in the reported quarter went up 6.3% year over year to $1,129.7 million. Gross profit increased around 4.7% to $442.4 million, while gross margin contracted 40 basis points (bps) to 28%.

Marketing, general and administrative expenses came in at $283 million compared with $278 million in the year-ago quarter. Adjusted operating profit advanced 10% year over year to $159 million. Adjusted operating margin expanded 30 bps on a year-over-year basis to 10%.

Segmental Performance

Revenues from the Label and Graphic Materials segment increased 7.6% year over year to $1,089.6 million. On an organic basis, sales grew around 5%. Adjusted operating profit rose 7.2% to $138 million from $128.7 million in the year-ago quarter.

Revenues from the Retail Branding and Information Solutions segment grew 2% to $366.8 million from $359.5 million recorded in the year-earlier quarter. Organic sales increased 2.9%. The segment’s adjusted operating income surged 23% to $30.4 million.

The Industrial and Healthcare Materials segment reported net sales of $115.7 million, up 2% from $113.4 million in the year-ago quarter. The segment reported adjusted operating income of $13.3 million compared to an operating profit of $15.9 million recorded in the year-ago period.

Financial Updates

Avery Dennison generated cash and cash equivalents of $294.9 million at the end of first-quarter 2017 compared with $169.6 million recorded at the end of the prior-year quarter. Cash flow from operations came in at $15.3 million during first-quarter 2017 compared with cash usage of $6.3 million in the comparable period last year.

At the end of first-quarter 2017, Avery Dennison’s long-term debt increased to $1,250 million compared with $963.6 million at the end of the year-earlier quarter.

During first-quarter 2017, Avery Dennison repurchased 0.5 million shares for a total cost of $35 million. The company’s share count increased 0.6 million in the reported quarter. The cost of repurchases, net of proceeds from stock option exercises, is $18 million.

Cost-reduction Activities

In the first quarter, Avery Dennison realized approximately $11 million in pre-tax savings from restructuring. The company incurred restructuring charges of approximately $6 million.

Guidance

For 2017, Avery Dennison raised its adjusted earnings per share guidance range to $4.50–$4.65 from the prior band of $4.30–$4.50. The company remains confident about the consistent execution of strategies that continues to enhance its competitive advantage, while driving profitable growth and improving returns.

Share Price Performance

Year to date, Avery Dennison outperformed the Zacks classified Office Supplies & Forms sub-industry with respect to price performance. The stock gained 17.4%, while the industry recorded growth of 13.8% over the same time frame.

Zacks Rank & Key Picks

Currently, Avery Dennison carries a Zacks Rank #2 (Buy).

Other stocks worth considering in the same sector are Donaldson Company, Inc. (NYSE:DCI) , Casella Waste Systems, Inc. (NASDAQ:CWST) and Parker-Hannifin Corporation (NYSE:PH) . All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Donaldson Company has an average positive earnings surprise of 5.93% for the trailing four quarters. Casella Waste generated an outstanding average positive earnings surprise of 165.21% in the past four quarters, while Parker-Hannifin has an average positive earnings surprise of 12.44% for the last four quarters.

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