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Avery Dennison Closes Buyout of Smartrac's RFID Inlay Unit

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Avery Dennison Corporation AVY has closed the acquisition of Smartrac’s Transponder (RFID Inlay) Division, for a purchase price of €225 million ($248.4 million).

Smartrac is a leader in the development and manufacture of Radio-frequency identification (RFID) products. It has solid research and development capabilities, along with a proven track record for commercializing effective, high-value and high-quality RFID products.

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.

Last November, Avery Dennison entered into an agreement to acquire Smartrac’s Transponder business. Through this acquisition, Avery Dennison will bolster its rapidly-growing Intelligent Labels platform across end markets and customers within the industrial and retail segments. The deal is likely to generate more than $450 million in revenues, with RFID business anticipated to grow 15-20% annually over the long term.

The 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. In fact, the company expects the deal to be modestly dilutive to the current-year earnings.

Recently, Avery Dennison reported mixed fourth-quarter results, wherein earnings surpassed the Zacks Consensus Estimate, while sales missed the same. Both top- and bottom-line figures improved year over year.

For the current year, Avery Dennison expects adjusted EPS of $6.90-$7.15, up from the prior-year guidance of $6.45-$6.70, reflecting improved volume growth and continued productivity gains. The company continues to deliver stellar profit growth, margin expansion and double-digit adjusted EPS improvement backed by acquisitions, organic growth and strong presence in emerging markets.

Avery Dennison witnessed 1.5% organic revenue increase on growth in high-value categories and emerging markets, and volume improvement in the Label and Graphic Material (LGM) segment during the December-end quarter. The segment is well poised for growth in the ongoing year, on solid top-line performance and continued margin expansion, aided by growth in emerging markets, volume improvement, focus on high-value categories led by specialty labels, as well as contributions from productivity initiatives.

The company will benefit from its faster-growing high-value product categories, such as specialty labels and RFID. Continued strength in RFID and external embellishments will drive Retail Branding and Information Solutions sales, reflecting the ongoing penetration of apparel, as well as expansion in relatively newer verticals, including food, beauty and logistics. The segment is well poised to capture these opportunities with industry-leading innovation and manufacturing capabilities. Moreover, the company continues to increase its investments, in order to boost growth organically and through acquisitions with higher spending for business development and R&D.

Nevertheless, the company is bearing the brunt of sluggish market trends and currency headwinds. Due to the strengthening of the U.S. dollar, currency translation is expected to have a larger impact on Avery Dennison’s ongoing quarter’s results, while transition costs associated with the European restructuring might dent current-year margins.

Share Price Performance

Over the past year, Avery Dennison’s shares have gained 9.7%, outperforming the industry’s growth of 8.1%.

Zacks Rank & Key Picks

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

A few better-ranked stocks in the Industrial Products sector include Northwest Pipe Company NWPX, Graco Inc. GGG and Sharps Compliance Corp SMED. 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.

Northwest Pipe has an expected earnings growth rate of 19.5% for the current year. The stock has appreciated 34% over the past year.

Graco has a projected earnings growth rate of 4.3% for 2020. The company’s shares have rallied 19% over the past year.

Sharps Compliance has an estimated earnings growth rate of a whopping 767% for the ongoing year. In a year’s time, the company’s shares have gained 39%.

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