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Avery Dennison (AVY) Down 1.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Avery Dennison (AVY - Free Report) . Shares have lost about 1.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Avery Dennison due for a breakout? 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 catalysts.

Avery Dennison Earnings Top, Sales Lag Estimates in Q2

Avery Dennison reported adjusted earnings of $1.72 per share in second-quarter 2019, surpassing the Zacks Consensus Estimate of $1.68. The figure also increased around 3.6% year over year.

Including one-time items, the company posted net income of $1.69 per share compared to the year-ago quarter’s earnings per share of $1.07.

Total revenues declined 3.2% year over year to $1.79 billion, missing the Zacks Consensus Estimate of $1.83 billion. Organic sales growth came in at 1.6% in the reported quarter.

Cost of sales in the quarter was down 3% year over year to $1.31 billion. Gross profit slipped 3.8% year over year to $482.3 million. Gross margin edged down to 26.8% from 27% the prior-year quarter.

Marketing, general and administrative expenses came in at $265.7 million compared with $287.5 million reported in the year-ago quarter. Adjusted operating profit came in at $216.6 million, up from the $213.9 million recorded in the prior-year quarter. Adjusted operating margin inched up to 12.1% from the year-earlier quarter’s 11.5%.

Segmental Performance

Revenues in the Label and Graphic Materials segment declined 4.1% year over year to $1,206.3 million. On an organic basis, sales grew 0.9%. Adjusted operating profit decreased 3.9% year on year to $166.5 million.

Revenues in the Retail Branding and Information Solutions segment inched up 0.4% year over year to $418.3 million. On an organic basis, sales were up 4.4%, primarily driven by continued strength in sales of radio frequency identification (RFID) solutions. The segment’s adjusted operating income increased 11.5% to $52.1 million.

The Industrial and Healthcare Materials segment reported net sales of $171.1 million, dropping 5% from the prior-year quarter. The segment reported adjusted operating income of $17.9 million compared with $16.8 million recorded in the comparable quarter last year.

Financial Updates

Avery Dennison had cash and cash equivalents of $247.3 million at the end of the second quarter, up from $215.8 million reported at the end of the year-ago quarter. The company generated $203.4 million in cash from operating activities in the reported quarter compared with $193.5 million reported in the year-earlier period.

During the April-June quarter, Avery Dennison repurchased 0.3 million shares for a total cost of $27.9 million. The company’s share count decreased 3.8 million in the quarter.

Avery Dennison’s long-term debt increased to $1,503.3 million as of Jun 29, 2019, compared with $1,289.7 million as of Jun 30, 2018.

Cost-Reduction Activities

Avery Dennison realized approximately $12 million in pre-tax savings from restructuring in the second quarter. The company incurred pre-tax restructuring charges of approximately $8 million.

Guidance
 
For 2019, Avery Dennison tightened its adjusted earnings per share guidance of $6.50-$6.65. Including the impact of the pension-settlement charge, Avery Dennison tightened the earnings per share guidance to $3.15-$3.30 from the prior estimate of $3.10-$3.35, maintaining the mid-point of its guidance.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Avery Dennison has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Avery Dennison has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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