Avery Dennison (AVY) To Report Q3 Earnings: What's In Store?

Avery Dennison Corporation (NYSE:AVY) is slated to release third-quarter 2017 results on Oct 25 before the market opens.

Last quarter, the company posted a positive earnings surprise of 10.08%. It is worth noting that Avery Dennison has outperformed the Zacks Consensus Estimate in each of the preceding four quarters, with an average positive earnings surprise of 6.07%.

Let’s take a look at how things are shaping up prior to this announcement.

Avery Dennison Corporation Price and EPS Surprise

Avery Dennison Corporation Price and EPS Surprise | Avery Dennison Corporation Quote

Factors at Play

Avery Dennison’s Label and Graphic Materials segment is the largest and highest-return business. The company expects the segment to exhibit strong profitability and solid sales growth in the near term. The segment benefited in the second quarter, driven by acquisitions, offset by timing issues and challenging comparison. The company remains confident to post roughly 4% organic growth for the segment in third-quarter 2017.

Avery Dennison completed the acquisitions of Yongle -- an industrial tapes business in China that serves global markets -- in June 2017. Onetime transition costs related to this buyout will have a meaningful impact on margins in the Industrial and Healthcare Materials (IHM) segment in the third quarter.

In the Retail Branding and Information Solutions segment (RBIS), Avery Dennison enhanced the segment’s competitiveness through strategic pricing initiatives. The segment’s operating margin improved in the second quarter, indicating the benefits of productivity initiatives and higher volume. Avery Dennison anticipates continued margin expansion in the segment in the back half of the year, led by business model transformation and benefit from the reduction in amortization.

Moreover, the company anticipates sequentially stronger sales growth, both ex-currency and organically, with healthy profitability into the second half of the year. However, raw material inflation and negative impact of foreign currency translation will thwart Avery Dennison’s third-quarter performance.

Further, Avery Dennison’s shares have underperformed the industry’s performance over the past year. The stock has gained 30.9% as against the industry's ascend of 31.2% during the same time frame.

Here is what our quantitative model predicts:

Avery Dennison does not have the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — needed for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Avery Dennison is -1.33%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Avery Dennison carries a Zacks Rank #4 (Sell).

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Barnes Group Inc. (NYSE:B) , with an Earnings ESP of +0.87% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

A. O. Smith Corporation (NYSE:AOS) , with an Earnings ESP of +0.11% and a Zacks Rank #2 (Buy).

Caterpillar Inc. (NYSE:CAT) , with an Earnings ESP of +1.27% and a Zacks Rank #2.

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