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Avery Dennison Corporation (AVY - Analyst Report) reported adjusted earnings of 53 cents per share in the third-quarter 2012, a 77% rise from the 30 cents per share delivered in the year-ago quarter; beating the Zacks Consensus Estimate of 45 cents.

Including restructuring costs and other items, earnings from continuing operations were 37 cents per share in the quarter compared with 33 cents in the year-ago quarter.
Total revenues dipped 0.8% to $1.488 billion from $1.500 billion in the prior-year quarter. Revenues were ahead of the Zacks Consensus Estimate of $1.487 billion.
Cost of sales for the reported quarter fell 3.3% to $1.096 billion. Gross profit increased 7.1% to $392 million from $366.9 million in the prior-year quarter.
Marketing, general & administrative expenses were $293.9 million versus $285 million in the year-ago quarter. Adjusted operating income from continuing operations increased to $98.1 million from $81.9 million in the year-earlier quarter. Operating margin expanded 110 basis points (bps) to 6.6% in the quarter.
Segmental Performance
Total revenues in the Pressure-sensitive Materials segment fell 1.3% to $982.9 million. Adjusted operating profit increased 4.4% to $85.8 million in the quarter. Operating margin contracted 30 bps to 7.4%, driven by employee related expenses, effects of product-mix and higher restructuring costs, partially offset by higher volumes and productivity initiatives. 
Total revenues from Retail Branding and Information Solutions increased 3.7% to $374.2 million from $360.7 million in the year-earlier quarter. Segmental adjusted operating income increased 33.6% to $15.9 million with adjusted operating margin expanding 90 bps to 4.2% due to productivity initiatives, higher volumes, lower restructuring charges, partially offset by employee related expenses and effects of product-mix.
Other specialty converting businesses segment reported net sales of $130.7 million, down 9% from $144.2 million in the year-ago quarter. Adjusted operating profit was $5.5 million compared with a loss of $1.1 million in the prior-year quarter. Adjusted operating margin jumped 500 basis points to 4.2% in the quarter due to RFID profitability, partially offset by higher restructuring costs.
Financial Position
As of September 29, 2012, cash and cash equivalents of the company were $190.7 million versus $119.7 million as of October 1, 2011. Long-term debt decreased to $702.7 million as of September 29, 2012, from $954.5 million as of October 1, 2011.
Cash flow from operating activities was $214.1 million in the first nine months of fiscal 2012 compared with $120 million of cash used in operating activities in the first nine months of fiscal 2011. Avery repurchased 2.9 million shares during the quarter at an aggregate cost of $86 million.
The company has raised its adjusted earnings guidance to a range of $2.00 to $2.05 per share from the earlier guidance range of $1.90 to $2.05 from $1.80. Free cash flow from continuing operations is expected to lie between $280 million and $310 million in 2012.
Our View
Avery is spending on restructuring activities to achieve more than $100 million in annualized savings from mid-2013. However, the activities being capital intensive will pressure margins in the upcoming quarters.
Avery retains a short-term Zacks #4 Rank (Sell). We have a long-term Underperform recommendation on the stock.

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