Avery Gains from Restructuring

Avery Dennison Corp. (AVY - Analyst Report) posted third quarter earnings of 82 cents per share, well-above the Zacks Consensus Estimate of 57 cents and slightly higher than last year’s earnings of 81 cents. Lower sales were offset by productivity improvements and gains from the restructuring program.

Net sales of $1,549.3 million reported in the third quarter were 10.2% lower than the previous-year level. Avery witnessed soft demand in most of its end markets. The Pressure-sensitive Materials segment posted a 9.1% decline in sales on a year-over-year basis, primarily due to lower sales of Roll Materials, and Graphics and Reflective Products.

Net sales in the Retail Information Services segment were down 14.2% from the corresponding quarter of 2008, reflecting weak apparel demand in the U.S. and Europe, and caution on the part of retailers.

In the Office and Consumer Products business, net sales fell 6.8% due to slower corporate purchase activity, which was partially offset by strong back-to-school sales. Sales from Avery’s other specialty converting businesses were down 12.6% due to a decline in volumes sold to the housing and construction industries.

In response to the tough market conditions, Avery started a restructuring program in the fourth quarter of 2008 to reduce costs across its segments. The company is targeting annualized savings of $160 million from this program by mid-2010. In addition, Avery expects $40 million of carryover savings in 2009 from previously implemented actions. At the end of the reported quarter, the company achieved run-rate savings representing approximately 70% of its restructuring target.

With end-market demand expected to remain weak in the near-term, Avery expects to offset this negative impact on its profits through productivity improvements and its restructuring program.

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