Avery Dennison's (AVY) Q4 Earnings Beat, Sales Lag Estimates

Avery Dennison Corporation (NYSE:AVY) reported adjusted earnings of $1.73 per share in fourth-quarter 2019, surpassing the Zacks Consensus Estimate of $1.68. The figure also increased around 13.8% year over year.

Including one-time items, the company posted net income of $1.92 per share compared with the year-ago quarter’s earnings per share (EPS) of $1.11.

Total revenues inched up nearly 0.2% year over year to $1,772.9 million. The top-line figure, however, missed the Zacks Consensus Estimate of $1,784 million. Organic sales growth came in at 2.1% in the reported quarter.

Cost of sales in the quarter edged down nearly 0.7% year over year to $1,288.2 million. Gross profit rose 2.8% year over year to $484.7 million. Gross margin increased to 27.3% from the prior-year quarter’s 26.6%.

Marketing, general and administrative expenses totaled $273.1 million compared with the $274.5 million incurred in the year-ago quarter. Adjusted operating profit came in at $212 million, up from the $197 million recorded in the prior-year quarter. Adjusted operating margin rose to 11.9% from the year-earlier quarter level of 11.1%.

Avery Dennison Corporation Price, Consensus and EPS Surprise

Segment Highlights

Revenues in the Label and Graphic Materials segment dipped 0.4% year over year to $1,176.2 million. On an organic basis, sales inched up 1.5%. Adjusted operating profit was up 2.6% year on year to $156 million.

Revenues in the Retail Branding and Information Solutions segment rose 3.6% year over year to $426.9 million. On an organic basis, sales were up 5.2%, as consistent strength in RFID and external embellishments. The segment’s adjusted operating income increased 15.5% to $58.1 million.

Net sales in the Industrial and Healthcare Materials segment amounted to $169.8 million, indicating a year-over-year decline of 3.1%. On an organic basis, sales were down 1.1%. The downside resulted from a mid-single digit decline in healthcare categories, partly offset by a low-single digit increase in industrial categories. The segment reported adjusted operating income of $17.4 million compared with the prior-year quarter’s $16.8 million.

Financial Updates

Avery Dennison had cash and cash equivalents of around $254 million at the end of 2019, up from $232 million at the end of 2018. During 2019 the company generated $746.5 million in cash from operating activities compared with the $457.9 million reported last year.

During the fourth quarter, Avery Dennison repurchased 0.3 million shares for a total cost of $33 million. In 2019, the company repurchased 2.2 million shares for a total cost of $238 million. The company’s share count declined 1.5 million for the year. In 2019, the company returned $427 million cash to shareholders through share repurchases and dividends.

The company’s long-term debt decreased to $1,499.3 million as of Dec 28, 2019 compared with $1,771.6 million as of Dec 29, 2018.

The company’s board has announced a quarterly cash dividend of 58 cents per share. The dividend is payable on March 18, to shareholders of record on Mar 4, 2020.

Cost-Reduction Activities

Avery Dennison realized around $18 million in pre-tax savings from restructuring in the December-end quarter. The company incurred pre-tax restructuring charges of nearly $29 million. For the full year, the company realized around $53 million and incurred pre-tax restructuring charges of nearly $50 million.

2019 Performance

Adjusted earnings per share for 2019 came in at $6.60, marking an improvement of 9% from the prior year. Earnings also surpassed the Zacks Consensus Estimate of $6.55. Including one-time items, earnings summed $3.57, down 32% year over year.

In 2019, revenues came in at $7.07 billion, reflecting a year-over-year decline of 1.2%. The top-line figure came in line with the Zacks Consensus Estimate. Organic sales growth was 2% during the year.

Guidance

For 2020, Avery Dennison expects adjusted EPS of $6.90-$7.15. Including restructuring charges and other items, the company predicts EPS to be $6.75-$7.

Price Performance

Shares of Avery Dennison have rallied 26.4% in the past year compared with the industry’s 27.3% rise.

Zacks Rank and Stocks to Consider

Avery Dennison currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are DXP Enterprises, Inc. (NASDAQ:DXPE) , SPX FLOW, Inc. (NYSE:FLOW) and Cintas Corporation (NASDAQ:CTAS) . While DXP Enterprises and SPX FLOW flaunts a Zacks Rank #1 (Strong Buy), Cintas carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.

DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the stock has appreciated 23.1%.

SPX FLOW has a projected earnings growth rate of 9.1% for 2020. The company’s shares have gained 41.6% in the past year.

Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 57.8% over the past year.

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