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Avery Dennison (AVY) Beats on Q2 Earnings & Sales, Hikes '21 View

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Avery Dennison Corporation (AVY - Free Report) reported third-quarter 2021 adjusted earnings of $2.14 per share, surpassing the Zacks Consensus Estimate of $2.07. The bottom line increased 12% on a year-over-year basis.

Including one-time items, the company reported earnings per share of $1.96 compared with the year-ago quarter’s $1.79 per share.

Total revenues increased 19.8% year over year to $2.07 billion as well as beat the Zacks Consensus Estimate of $1.98 billion. Sales were up 13.9%, year over year, on an organic basis.

Cost of sales in the quarter grew 21.8% year over year to $1,517 million. The gross profit climbed 14.5%, year over year, to $554 million. The gross margin expanded to 26.7% in the third quarter compared with the prior-year quarter’s 28%.

Marketing, general and administrative expenses were $297 million compared with the $258 million incurred in the year-ago period. The adjusted operating profit amounted to around $258 million, up 14% from the prior-year quarter’s $226 million. The adjusted operating margin was 12.4% in the quarter compared with the year-ago quarter’s 13.1%.

Avery Dennison Corporation Price, Consensus and EPS Surprise

Avery Dennison Corporation Price, Consensus and EPS Surprise

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

Segment Highlights

Revenues in the Label and Graphic Materials (LGM) segment increased 18% year over year to $1,346 million in the reported quarter. Label and Packaging Materials sales were up 15%, with stellar growth witnessed in both the high value product categories and the base business.

Sales increased 11% in the combined Graphics and Reflective Solutions businesses. On an organic basis, sales were up 14%. The segment’s adjusted operating profit increased 6% year on year to $185 million.

Revenues in the Retail Branding and Information Solutions (RBIS) segment grew 25% year over year to $531 million. On an organic basis, sales were up 14%, reflecting solid growth in both the high value categories and the base business. The segment’s adjusted operating income was $73 million compared with the year-ago quarter’s $51 million.

Net sales in the Industrial and Healthcare Materials (IHM) segment totaled $195 million, up 24% from the $158 million recorded in the prior-year period. This highlights a high-teens increase in the industrial categories and a high-single digit increase in the healthcare categories. The segment reported adjusted operating income of $19.4 million compared with the prior-year quarter’s $19.1 million.

Financial Updates

Free cash flow in the reported quarter was $251 million compared with the year-earlier quarter’s $233 million. The company returned $290 million in cash to shareholders through share repurchases and dividend payment during the quarter.

Avery Dennison ended the third quarter with cash and cash equivalents of $207 million compared with $285 million at the end of the prior-year quarter. As of the end of third-quarter 2021, the company’s net debt to adjusted EBITDA ratio was 2.3, at the lower end of the company’s long-term target of 2.3-2.6.

Guidance

Backed by an impressive performance in the third quarter, Avery Dennison raised its adjusted earnings per share guidance for 2021 to the band of $8.80-$8.95 from the previous estimate of $8.65-$8.95.

Business Update

In September, Avery Dennison completed the Vestcom buyout for $1.45 billion in a bid to expand its RBIS capabilities. Vestcom is a provider of retail shelf-edge pricing, productivity and branding labeling solutions for retailers and consumer packaged goods companies. This buyout will expand the company’s foothold in the high value categories.

Price Performance

Shares of Avery Dennison have gained 58.9%, in the past year, outperforming the industry’s growth of 55.2%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank and Stocks to Consider

Avery Dennison currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the Industrial Products sector include Nordson Corporation (NDSN - Free Report) , Worthington Industries, Inc. (WOR - Free Report) and DXP Enterprises, Inc. (DXPE - Free Report) . All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nordson has an anticipated earnings growth rate of 45.2% for fiscal 2021. The company’s shares have rallied around 22%, year to date.

Worthington has an estimated earnings growth rate of 3.6% for fiscal 2022. Year to date, the company’s shares have gained 9.8%.

DXP Enterprises has a projected earnings growth rate of 77.6% for the current year. The stock has appreciated around 49%, so far this year.