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Strategic Initiatives Drive Avery Dennison, Forex Impact a Woe

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On Mar 6, we issued an updated research report on Avery Dennison Corporation (AVY - Free Report) . The company is well poised to grow on acquisitions, strong presence in emerging markets and upbeat momentum across all segments. Growth in high-value product categories, focus on productivity improvement and a disciplined capital-management approach will also aid the company’s performance. However, negative currency-translation impact is expected to play spoilsport.

Avery Dennison’s shares have gained 5.7% in the past year, compared to the industry‘s growth of 6.1%.



Upbeat Q4 Earnings

Avery Dennison reported mixed fourth-quarter 2019 results. Adjusted earnings of $1.73 per share surpassed the Zacks Consensus Estimate of $1.68 and increased 13.8% year over year. The company continues to register stellar profit, margin expansion and double-digit adjusted earnings improvement, aided by acquisitions, organic growth and strong presence in emerging markets.

The company is focused on four overarching priorities, comprising fueling growth in high-value product categories, enhancing profitability in base businesses, relentlessly pursuing productivity improvement and a disciplined capital-management approach. However, unfavorable foreign currency impact is expected to impact the company’s near-term results.  Further, transition costs associated with the restructuring actions for the European footprint of its Label and Graphic Materials segment is likely to erode margins this year.

For the current year, Avery Dennison expects adjusted EPS of $6.90-$7.15, up from the prior-year range of $6.45 to $6.70, reflecting improved volume growth and continued productivity gains. Organic sales growth is estimated to be 2-3%.

Segments Poised to Grow

The Label and Graphic Materials segment will maintain its upbeat top-line momentum and margin expansion in the ongoing year, aided by growth in emerging markets, volume improvement, focus on high-value categories led by specialty labels and contributions from productivity initiatives. Furthermore, the completion of restructuring actions associated with the consolidation of its European footprint will bring in higher returns and provide a competitive edge to the segment.

The Industrial and Healthcare Materials (IHM) segment will benefit from margin expansion target as well as the Yongle, Finesse and Mactac acquisitions. Avery Dennison’s balance sheet remains strong and has ample capacity to keep funding acquisitions, executing disciplined capital-allocation strategy, investing in organic growth and returning cash to shareholders.

High-Value Products to Spur Growth

The company will benefit from its fast-growing high-value product categories, such as specialty labels and Radio-frequency identification (RFID). Continued strength in RFID and external embellishments will bolster the Retail Branding and Information Solutions segment sales.
 
Moreover, the company has increased investments to fuel growth with higher spending for business development and R&D. In sync with this, the company acquired Smartrac’s Transponder (RFID Inlay) Division. The deal will generate more than $450 million in revenues, with RFID business anticipated to be up 15-20% annually over the long haul.

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the Industrial Products sector include Tennat Company (TNC - Free Report) , Graco Inc. (GGG - Free Report) and Sharps Compliance Corp (SMED - 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.

Tennant Company has an expected earnings growth rate of 40.7% for the current year. The stock has appreciated 18% 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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