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On Mar 13, we maintained our Outperform recommendation on pressure-sensitive materials producer and provider of wide variety of information and brand management solutions, Avery Dennison Corporation (AVY - Analyst Report), based on strong organic sales growth, benefits from restructuring initiatives and divestiture of its underperforming Office and Consumer Products unit. Avery currently retains a short-term Zacks Rank #1 (Strong Buy).

Why Reiterated?
 
Avery’s adjusted earnings increased 50% year over year to 54 cents per share in fourth-quarter 2012 and revenues rose 5% year over year to $1.5 billion. Both were ahead of the respective Zacks Consensus Estimates. 
 
In the fourth quarter, net sales grew approximately 7% on an organic basis, the strongest organic growth witnessed since the first quarter of 2011. In 2012, organic sales grew 4%, primarily aided by higher volumes for pressure sensitive materials and a rebound in the core business of retail branding and information solutions. The organic growth momentum is expected to continue in 2013 as well.
 
In order to attain its financial targets of double-digit earnings growth and higher returns, Avery has aggressively implemented a restructuring program to reduce cost across all the business segments. The program is anticipated to be completed by mid-2013. Avery expects to save more than $100 million annually leveraging this program by mid-2013.
 
Avery’s Office and Consumer Products segment has been a long-struggling segment due to weak end-market demand and cut-throat competition in the label category. In Jan 2013, Avery has agreed to divest the segment along with its Designed and Engineered Solutions businesses to CCL Industries Inc., a global leader in specialty packaging solutions, for $500 million in cash.
 
The net sale proceeds of approximately $400 million will be utilized to repurchase shares and make an additional pension contribution. With the divestiture of the weaker Office Products business, Avery will be able to focus on its market-leading, pressure sensitive materials business and Retail Branding and Information Solutions segment.
 
Other Stocks to Consider
 
Other stocks in the same industry with favorable Zacks rank are United Stationers Inc. (USTR - Snapshot Report) and Graphic Packaging Holding Company (GPK - Snapshot Report), which retain a Zacks Rank #2 (Buy) while another peer Quad/Graphics, Inc , carries a Zacks Rank #1 (Strong Buy).

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