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Avery Dennison (AVY) Rides on Strong Demand & Cost Savings

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On Dec 21, 2020 we issued an updated research report on Avery Dennison Corporation (AVY - Free Report) . Labelling of non-durable consumer goods like food, beverage, home and personal care products account for around 40% of the company’s revenues. Demand for these products has been strong amid the pandemic. Along with its restructuring efforts, the company has been cutting costs, which will drive margins. Avery Dennison’s balance sheet remains strong and has ample capacity to continue funding acquisitions, executing disciplined capital-allocation strategy, investing in organic growth and returning cash to shareholders.

Demand Remains Strong

Around 40% of the company’s revenues stem from labelling of non-durable consumer goods like food, beverage, home and personal care products. Demand for these products has been strong amid the pandemic. In the long term, growing demand from emerging markets on the back of rising middle class, and the consequent surge in demand for packaged goods and shift in labelling technology to pressure-sensitive materials will drive growth for the company.

Also, around 15% of the company’s revenues is associated to logistics and shipping, which will be sustained by growth in e-commerce activities.

Segments Poised Well

The company’s Label and Packaging Materials segment serves essential categories that are experiencing higher demand during coronavirus pandemic. The segment is well poised for profitable growth in the current year, driven by solid top-line growth and continued margin expansion, volume improvement, focus on high-value categories led by specialty labels, and contributions from productivity initiatives.

The company will benefit from its faster growing high-value product categories, such as specialty labels and Radio-frequency identification (RFID), will drive Retail Branding and Information Solutions (RBIS) segment. The segment’s global footprint is providing competitive edge during the coronavirus pandemic. The company continues to increase investments to drive growth both organically and through acquisitions with higher spending for business development and R&D.

In February, Avery Dennison acquired Smartrac’s Transponder (RFID Inlay) Division, which is a leader in the development and manufacture of RFID products. Along with augmenting its product lines, the buyout also enhances Avery Dennison’s research and development capabilities and adds to manufacturing capacity. Notably, the deal will generate greater revenues with RFID business anticipated to grow 15-20% annually over the long term.

Expected Savings From Restructuring

Along with strategic restructuring efforts to position the company for long-term growth, Avery Dennison has undertaken temporary actions to reduce costs amid the COVID-19 pandemic. Avery Dennison anticipates incremental savings from restructuring actions, net of transition costs, between $60 million and $70 million during 2020. For 2021, the company expects carryover savings (net of transition costs) of approximately $70 million in 2021. Additionally, Avery Dennison is targeting net temporary savings of approximately $150 million in 2020.

Also, the company’s capital-allocation priorities support its primary objectives of delivering accelerated growth in high value categories with profitable growth of its base businesses. The company continues to fund acquisitions, investing in organic growth and returning cash to shareholders.

Share Price Performance

The company’s shares have appreciated 14.4% over the past year, against the industry’s decline of 7.9%.

Zacks Rank & Other Stocks to Consider

Avery Dennison currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the Industrial Products sector include AGCO Corporation (AGCO - Free Report) , Silgan Holdings Inc. (SLGN - Free Report) , and Ball Corporation (BLL - Free Report) . While AGCO flaunts a Zacks Rank #1, Silgan and Ball Corp carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an expected earnings growth rate of 15.5% for 2020. The stock has appreciated 32.8% in one year’s time.

Silgan has an estimated earnings growth rate of 38% for the ongoing year. Shares of the company have gained 17% in the past year.

Ball Corp has a projected earnings growth rate of 16.2% for the current year. Over the past year, the company’s shares have gained 42.1%.

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