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Avery Dennison to Buy Smartrac's Unit, Expand Product Offering

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Avery Dennison Corporation (AVY - Free Report) has entered into an agreement to acquire Smartrac’s Transponder (RFID Inlay) Division, for a cash payment of €225 million ($249.4 million). Notably, the division is a leader in the development and manufacture of Radio-frequency identification (RFID) products, with estimated global revenues of around €125 million ($140 million) for 2019. Through the acquisition, Avery Dennison will bolster its rapidly-growing Intelligent Labels platform across end markets and customers within the industrial and retail segments.

Headquartered in Amsterdam, the Netherlands, Smartrac has production facilities in China, Malaysia, Germany and the United States. Its RFID transponder business has an attractive product portfolio for a wide range of customers.

The latest transaction will back Avery Dennison’s strategy to invest organically, as well as through mergers and acquisitions, in order to shift its portfolio toward faster growing, higher value categories. The deal will generate more than $450 million in revenues, while also offering long-term profitability and growth.

The deal is likely to close in a few months. The company plans to fund the transaction with existing cash and credit facilities.

Avery Dennison put up an impressive show in third-quarter 2019. Earnings and revenues both improved year over year as well as beat the respective Zacks Consensus Estimate.

The company witnessed growth in high-value categories and volume improvement at the Label and Graphic Material (LGM) segment in the September-end quarter. The segment will maintain its momentum of solid top-line growth and continued margin expansion, aided by growth in emerging markets, focus on high-value categories led by specialty labels, as well as contributions from productivity initiatives.

Avery Dennison will benefit from its faster-growing high-value product categories, such as specialty labels and RFID. RFID sales were up more than 20% in the September-end quarter on solid apparel business. The company expects strong engagement among apparel retailers and brands, as well as promising early-stage developments in the other end markets, aided by categories outside of apparel. The company increases its investments, in order to boost growth, with higher spending for business development and R&D.

Nevertheless, Avery Dennison lowered its near-term outlook for top-line growth due to sluggish market trends and currency headwinds. Consequently, it lowered the higher end of the adjusted EPS guidance of $6.50-$6.60 from the prior view of $6.50-$6.65, for the current year. 

Avery Dennison Corporation Price and Consensus

Zacks Rank & Stock to Consider

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

Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company ( (NWPX - Free Report) , Tennant Company ( (TNC - Free Report) and Casella Waste Systems, Inc. ( (CWST - Free Report) . While Northwest Pipe and Tennant sport a Zacks Rank #1 (Strong Buy), Casella Waste Systems carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 39% in a year’s time.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 26.5% over the past year.

Casella Waste Systems has an estimated earnings growth rate of 37.7% for the ongoing year. The company’s shares have gained 32.6% in the past year.

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