A month has gone by since the last earnings report for Avery Dennison (AVY Quick QuoteAVY - Free Report) . Shares have added about 1.6% in that time frame, underperforming the S&P 500.

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

Avery Dennison Beats on Q1 Earnings, Scraps '20 Guidance

Avery Dennisonreported adjusted earnings of $1.66 per share in first-quarter 2020, surpassing the Zacks Consensus Estimate of $1.50. The figure also increased 12% year over year.

Including one-time items, the company posted net income of $1.60 per share, as against the net loss of $1.74 per share reported in the year-ago quarter.

Total revenues edged down 1% year over year to $1,723 million. The top-line figure, however, beat the Zacks Consensus Estimate of $1,719 million. Organic sales growth came in at 0.3% in the reported quarter.

Cost of sales in the quarter slid nearly 3% year over year to $1,238 million. Gross profit improved 4.3% year over year to $485 million. Gross margin increased to 28% from the prior-year quarter’s 27%.

Marketing, general and administrative expenses totaled $281 million compared with the $276 million incurred in the year-ago quarter. Adjusted operating profit came in at around $204 million, up from the $189 million recorded in the prior-year quarter. Adjusted operating margin rose to 11.8% from the year-earlier quarter level of 10.9%.

Segment Highlights

Revenues in the Label and Graphic Materials (LGM) segment inched up 0.2% year over year to $1,181 million. On an organic basis, sales were up 1.8%. Adjusted operating profit was up 18.2% year on year to $174 million.

Revenues in the Retail Branding and Information Solutions (RBIS) segment dropped 0.9% year over year to $395 million. On an organic basis, sales were down 1.1% due to significant demand decline in apparel markets reflecting widespread retail store and apparel manufacturing closures. The segment’s adjusted operating income plunged 31% year over year to $34 million. The company has completed the acquisition of Smartrac’s transponder business and its integration is on track.

Net sales in the Industrial and Healthcare Materials (IHM) segment amounted to $148 million, indicating a year-over-year decline of 9.7%. On an organic basis, sales were down 7.8% due to decline in industrial and healthcare categories. The segment reported adjusted operating income of $15.4 million compared with the prior-year quarter’s $15.5 million.

Financial Updates

Avery Dennison had cash and cash equivalents of around $742 million as of Mar 28, 2020, up from $226 million as of Mar 30, 2019. During the reported quarter, the company generated $4.4 million in cash from operating activities compared with the year-earlier quarter’s $35.4 million.

The company has temporarily suspended its share-repurchase activity on concerns over the coronavirus outbreak, while maintaining the quarterly dividend at its current rate of 58 cents per share.

The company’s long-term debt increased to $1,988 million as of Mar 28, 2020, compared with around $1,760 million as of Mar 30, 2019.

Cost-Reduction Activities

Avery Dennison realized $17 million in pre-tax savings from restructuring in the January-March period. The company incurred pre-tax restructuring charges of nearly $2 million. The company anticipates incremental savings from restructuring actions of $50-$60 million during 2020.

Guidance

Avery Dennison has revoked its EPS guidance for the current year in light of the uncertainties related to the coronavirus pandemic and its impact on global demand for the company’s products.

It expects the Label and Packaging Materials business to fare relatively better, while the RBIS and Graphics Solutions business is likely to be hit hard. The company now forecasts sales and earnings to decline in the current year on lower demand. This is likely to reflect the adverse impact on the second-quarter results. Organic sales are projected to be down 15-20% year over year in the ongoing quarter.

The company had initiated cost-control and cash-management initiatives to offset the decline in demand for certain of its businesses. This is likely to deliver free cash flow of at least $500 million in 2020 and 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -23.79% due to these changes.

VGM Scores

At this time, Avery Dennison has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was 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 D. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.