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Avery Dennison (AVY) Up 1.6% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Avery Dennison Corporation (AVY - Free Report) . Shares have added about 1.6% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is AVY due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Avery Dennison Q1 Earnings & Sales Beat Estimates
 
Avery Dennison reported adjusted earnings of $1.44 per share in first-quarter 2018, which surged around 30% year over year. Earnings also beat the Zacks Consensus Estimate of $1.34. The year-over-year improvement was mainly driven by strong operating results, currency translation tailwinds and a lower tax rate.
 
Including one-time items, the company reported earnings of $1.40 per share in the quarter, up 12% from $1.25 per share recorded in the prior-year quarter.
 
Total revenues jumped around 13% to $1.78 billion from $1.57 billion witnessed in the year-earlier quarter. The revenue figure also surpassed the Zacks Consensus Estimate of $1.76 billion. On an organic basis, sales were up nearly 3.4% year over year.
 
Cost of sales in the first quarter went up 14.5% year over year to $1.29 billion. Gross profit increased around 9.3% year over year to $483 million, while gross margin contracted 100 basis points (bps) to 27%.
 
Marketing, general and administrative expenses came in at $295 million compared with $280 million reported in the year-ago quarter. Adjusted operating profit advanced 15.9% year over year to $188 million. Adjusted operating margin expanded 30 bps on a year-over-year basis to 10.6%.
 
Segmental Performance
 
Revenues from the Label and Graphic Materials (LGM) segment climbed around 12% year over year to $1,218 million. On an organic basis, sales grew around 3.6%. Adjusted operating profit rose 12.8% to $158 million from $140 million reported in the comparable period last year.
 
Revenues from the Retail Branding and Information Solutions segment were up 5.2% to $386 million from $367 million recorded in the year-earlier quarter. On an organic basis, sales grew more than 3%. The segment’s adjusted operating income improved around 27% to $39.4 million.
 
The Industrial and Healthcare Materials segment reported net sales of $172 million, up 49% from $116 million recorded in the prior-year quarter. The segment reported adjusted operating income of $13 million compared to operating profit of $14 million recorded in the year-ago period.
 
Financial Updates
 
Avery Dennison had cash and cash equivalents of $188 million at the end of the first quarter, down from $295 million reported at the end of the year-ago quarter. The company generated $16 million in cash from operating activities during the quarter compared with $14 million recorded in the prior-year period.
 
Avery Dennison’s long-term debt increased to $1,343 million as of Mar 31, 2018, compared with $1,250 million as of Apr 1, 2017.
 
During the first quarter, Avery Dennison repurchased 0.4 million shares for a total cost of $52 million. The company’s share count decreased 0.2 million in the reported quarter.
 
Cost-Reduction Activities
 
Avery Dennison realized approximately $11 million in pre-tax savings from restructuring in the first quarter. The company incurred restructuring charges of approximately $13 million.
 
It approved a restructuring plan comprising the consolidation of the European footprint of its LGM segment. The plan, which is expected to complete by the end of 2019, will reduce the company’s workforce by about 150 positions.
 
Avery Dennison estimated total pretax restructuring charges of around $70 million associated with the plan. Of these charges, $6.9 million represents non-cash asset impairment charges, all of which were recorded in the first quarter of 2018. The remaining charges will largely be recognized during second-quarter 2018, while the majority of the cash payments associated with these accruals will be made in 2019.
 
The company expects to realize approximately $25 million in annualized savings from this plan, beginning in 2020.
 
Guidance
 
For 2018, Avery Dennison raised its adjusted earnings per share guidance to $5.85-$6.05 from $5.70-$5.95. The company is poised to benefit from the restructuring plan associated with the consolidation of LGM’s European footprint, designed to further enhance its competitive position in the region.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.

VGM Scores

At this time, AVY has an average Growth Score of C, however its Momentum is doing a bit better with a B. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise AVY has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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