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What's in the Cards for Avery Dennison (AVY) in Q1 Earnings?

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Avery Dennison Corporation (AVY - Free Report) is slated to release first-quarter 2018 results on Apr 25 before the opening bell.
 
In the last reported quarter, the company recorded year-over-year improvement in both its top and bottom lines. Further, the company delivered a positive earnings surprise of 6.4% in the quarter. It is worth noting that Avery Dennison has outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average positive earnings surprise of 6.8%.
 
Avery Dennison Corporation Price and EPS Surprise
 
Avery Dennison Corporation Price and EPS Surprise

Avery Dennison Corporation price-eps-surprise | Avery Dennison Corporation Quote

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

Factors at Play

Avery Dennison’s Label and Graphic Materials segment is the largest and highest-return business. The segment will maintain its momentum of strong top-line growth and continued margin expansion, aided by growth in emerging markets, company’s strategic focus on high-value categories (including specialty labels) as well as the ongoing contribution from productivity initiatives.

The Retail Branding and Information Solutions segment continues to perform well on the back of business model transformation. This has enabled it to gain share market share, while driving significant margin expansion. Avery Dennison has increased the segment’s competitiveness through strategic pricing initiatives. Margins are likely to improve exhibiting the benefits of productivity initiatives and higher volume. Growing adoption of RFID (Radio-frequency identification) by retailers due to growth of omni-channel retailing as well as the requirement to locate inventories at all times is fueling demand. Consequently, RFID sales, which increased a 20% year over year in 2017, will continue to boost the segment’s sales in the to-be-reported quarter as well.

However, the Industrial and Healthcare Materials segment’s operating margins are currently bearing the brunt of acquisitions and growth-related investments as well as a number of operational challenges. Further, modest sequential raw material inflation will hinder Avery Dennison’s first-quarter performance. Further, higher-debt levels following the Yongle and Finesse acquisitions remain a concern.

Nevertheless, the Zacks Consensus Estimate for the first quarter is currently pegged at $1.34, reflecting year-over-year growth of 20.7%. The estimate for revenues is pegged at $1.76 billion, projecting a year-over-year climb of 11.7%. Focus on productivity, acquisitions, aggressive cost control and share repurchases will drive the results.

Further, Avery Dennison’s shares have outperformed the industry’s performance in the past year. The stock has gained 31.8%, compared with the industry's growth of 26.3%.
 
Here’s What Our Quantitative Model Predicts
 
Our proven model does not conclusively show that Avery Dennison will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
 
That is not the case here as you will see below.
 
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -4.66%.
 
Zacks Rank: Avery Dennison is #3 Ranked. Though a Zacks Rank of 3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.
 
We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
 
Stocks to Consider
 
Here are a few industrial products stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.
 
Axon Enterprise, Inc. has an Earnings ESP of +12.50% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. Axon’s shares have surged 85% in the past year.
 
The Earnings ESP for Alarm.com Holdings, Inc. (ALRM - Free Report) is +5.44%. It sports a Zacks Rank #1. Shares of Alarm.com Holdings have gone up 32% in a year’s time.
 
Rexnord Corporation has an Earnings ESP of +4.36% and a Zacks Rank #2. Its shares have gone up 34% in a year’s time.
 
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