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Avery Dennison Corporation (AVY - Analyst Report) reported adjusted earnings of 65 cents per share in the first quarter of 2014, up 10% from 59 cents earned in the year-ago quarter. The results, however, missed the Zacks Consensus Estimate by a penny.

Including restructuring costs and other items, earnings from continuing operations were 73 cents per share in the quarter, compared with 66 cents in the year-ago quarter.

Total revenue increased 3% (organic as well as reported basis) to $1.55 billion from $1.49 billion in the prior-year quarter, driven by strong volume growth in Pressure-sensitive Materials. However, the reported figure fell short of the Zacks Consensus Estimate of $1.57 billion.
 
Cost of sales in the reported quarter rose 4% year over year to $1.14 billion. Gross profit increased 1.4% to $407.2 million from $401.7 million in the prior-year quarter. Nevertheless, gross margin contracted 50 basis points (bps) to 26.3%.

Marketing, general and administrative expenses were $296.7 million versus $300.9 million in the year-ago quarter. Adjusted operating profit increased 10% to $110.5 million. Adjusted operating margin improved 40 bps to 7.1% on a year-over-year basis.
 
Segmental Performance

Total revenue in the Pressure-sensitive Materials segment increased 4% to $1.14 billion. Label and Packaging Materials sales rose in mid single digits. Moreover, sales for Graphics, Reflective and Performance Tapes increased in mid double digits. Adjusted operating profit increased 4.4% to $113 million in the quarter driven by productivity improvement initiatives and higher volume, partly offset by higher employee-related expenses.

Total revenue from Retail Branding and Information Solutions increased 1% to $387.7 million from $382.7 million in the year-earlier quarter. The improvement was driven by increased demand from European retailers and brands. The segment’s adjusted operating income rose 28% to $22.6 million on productivity improvement initiatives and higher volumes, partially offset by employee-related expenses and restructuring charges.

Vancive Medical Technologies segment reported net sales of $18.9 million, up 4% from $18.2 million in the year-ago quarter. The segment reported an operating loss of $2.6 million, narrower than the year-ago quarter loss of $2.7 million.

Financial Updates

As of Mar 29, 2014, Avery reported cash and cash equivalents of $205 million versus $207.7 million as of Mar 30, 2013. The company’s cash usage from operating activities came in at $108 million in the reported quarter, compared with $65.7 million in the prior-year quarter.

Long-term debt of the company increased to $950 million as of Mar 29, 2014 from $702 million as of Mar 30, 2013. Debt-to-capitalization ratio contracted to 42.8% as of Mar 29, 2014 from 46% as of Mar 30, 2013. The company repurchased 1.2 million shares in the first quarter of 2014 at an aggregate cost of $59 million.

Cost Reduction Activities

In the first quarter, the company realized approximately $10 million of savings from the restructuring program initiated in the first half of 2012. Moreover, it incurred restructuring costs, net of gain on sale of assets, of around $7 million in the reported quarter.

Fiscal 2014 Outlook

Avery reiterated its full-year 2014 adjusted earnings in the range of $2.90 to $3.20 per share. Including an estimated $0.30 per share for restructuring costs and other items, the company reaffirmed earnings guidance in the range of $2.60 to $2.90 per share, with growth in the range of 8%–19%. The company expects to incur cash restructuring costs of $45 million in 2014.

Pasadena, CA-based Avery Dennison manufactures pressure-sensitive materials and tickets, tags, labels and other converted products. The company has over 200 manufacturing and distribution facilities in more than 60 countries.

Currently, Avery has a Zacks Rank #3 (Hold). Among other companies in the same industry, United Stationers Inc. (USTR - Snapshot Report) will also announce first-quarter 2014 results today and ACCO Brands Corp. (ACCO - Snapshot Report) on Apr 30. Another peer, CompX International Inc. is also expected to report its first-quarter results soon.

Read the Full Research Report on AVY
Read the Full Research Report on ACCO
Read the Full Research Report on CIX
Read the Full Research Report on USTR


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