Avery Dennison Corporation (AVY) reported adjusted net income of 49 cents per share in the first quarter of fiscal 2012, slightly below 51 cents delivered in the year-ago quarter. Adjusted earnings from continuing operations came in at 45 cents in the quarter, as compared with 47 cents posted in the year ago period. The adjusted earnings per share beat the Zacks Consensus Estimate of 44 cents.
Net income (as reported) fell slightly to $43.9 million (or 41 cents per share) from $44.8 million, or 42 cents per share, in the year-ago period.
Total revenues dipped 3% to $1.48 billion from $1.53 billion in the prior-year quarter, but were ahead of the Zacks Consensus Estimate of $1.47 billion.
Cost of sales for the reported quarter dipped roughly 3% to $1.096 billion. Gross profit declined 3% to $387.6 million from $399.5 million in the prior-year quarter.
Marketing, general & administrative expenses were $296.5 million versus $314.9 million in the year-ago quarter. Adjusted operating income from continuing operations increased to $91.1 million from $84.6 million in the year-earlier quarter.
Segmental Performance
Total revenues in the Pressure-sensitive Materials segment decreased 2% on a year-over-year basis to $990.2 million. Label and Packaging Materials remained flat from last year and witnessed a decline in volumes.
However, higher prices offset the volume drop to some extent. Graphics and Reflective Solutions saw growth in revenues, aided by higher volumes and prices. Adjusted operating profit increased to $87.4 million in the quarter from $83.5 million in the year-ago period.
Total revenues from Retail Branding and Information Solutions declined to $357.3 million from $375.2 million in the year-earlier quarter due to low demand from retailers and brands in the U.S. and Europe. Segmental adjusted operating income also decreased to $7.2 million from $12.2 million in the prior-year quarter.
Other specialty converting businesses segment reported net sales of $135.8 million, down 4% from $141.9 million in the year-ago quarter. The segment posted an operating loss of $0.1 million versus an operating loss of $2 million in the prior-year quarter.
Financial Position
As of March 31, 2012, cash and cash equivalents of the company were $190.7 million versus $120.4 million as of April 2, 2011. Long-term debt was $703.7 million as of March 31, 2012, compared with $955.4 million as of April 2, 2011.
Cash flow from operating activities was $11.9 million in the quarter compared with $117.5 million of cash used in operating activities in the first quarter of 2011.
Outlook
The company expects adjusted earnings to lie between $1.80 and $2.15 a share and free cash flow from continuing operations between $275 million and $325 million in 2012.
Our Take
Avery Dennison is struggling with high raw material costs and low volumes but is trying to combat them by implementing price increases and cost reduction initiatives. The company expects to complete the sale of its weaker Office Products business by the second half of this year, thereby enabling it to focus on its market-leading, pressure-sensitive materials business, and Retail Branding and Information Solutions segment.
Pasadena, California-based Avery Dennison produces pressure-sensitive materials, office products and a variety of tickets, tags, labels and other converted products. Avery is a Fortune 500 company operating over 200 manufacturing and distribution facilities with roughly 32,000 employees in more than 60 countries. It competes primarily with Bemis Company Inc. (BMS) and 3M Co. (MMM).
We maintain our Underperform recommendation on Avery Dennison. The shares of Avery Dennison are currently maintaining a Zacks #5 Rank (Strong Sell) over the short term that corresponds with our recommendation.
