Avery Dennison Announces Fourth Quarter and Full Year 2018 Results

• 4Q18 Reported EPS of $1.11, incl. pension settlement charges
  • Adjusted EPS (non-GAAP) of $1.52
• 4Q18 Net sales increased 1.9% to $1.77 billion
  • Organic sales change (non-GAAP) of 4.8%
• FY18 Reported EPS of $5.28, incl. pension settlement charges
  • Adjusted EPS of $6.06
• FY18 Net sales increased 8.2% to $7.16 billion
  • Sales change ex. currency of 6.9%
  • Organic sales change of 5.5%
• Returned $568 mil. to shareholders via share repurchase and dividends in 2018
• Expect FY19 Reported EPS of $2.70 to $2.95, incl. pension settlement charge
  • Adjusted EPS of $6.45 to $6.70

GLENDALE, Calif.--(BUSINESS WIRE)-- Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its fourth quarter and year ended December 29, 2018. Non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, comparisons are to the same periods in the prior year.

“2018 marked the company’s seventh consecutive year of strong top-line growth, margin expansion, and double-digit adjusted EPS growth,” said Mitch Butier, President and CEO. “Organic growth for the year was largely driven by volume, as we continue to benefit from our focus on high value categories and leadership position in faster-growing emerging markets.

“Label and Graphic Materials delivered strong organic growth, while maintaining strong operating margins in the face of significant raw material inflation. Retail Branding and Information Solutions’ operating income once again rose significantly, reflecting outstanding performance in both top-line growth and margin expansion. And, in a challenging year, Industrial and Healthcare Materials made progress with its margin turnaround.

“2018 marked an important milestone for the company, as the final year of measurement for the five-year financial targets we communicated in early 2014,” added Butier. “I’m pleased to report that we achieved all of our long-term goals for this period.

“For 2019, we are targeting continued progress toward our 2021 goals,” said Butier. “Notwithstanding a significant headwind from currency translation and an uncertain economic climate, we expect to deliver solid top- and bottom-line growth.

“I would like to thank our employees for their dedication to creating superior value for our customers, investors, and the communities in which we operate. We remain confident that the consistent execution of our strategies will enable us to continue to deliver for all of our key stakeholders.”

Fourth Quarter 2018 Results by Segment

Label and Graphic Materials

• Reported sales increased 1.7 percent. On an organic basis, sales grew 4.7 percent. Sales increased mid-single digits on an organic basis in Label and Packaging Materials, as well as in the combined Graphics and Reflective Solutions businesses.
• Reported operating margin increased 60 basis points to 12.7 percent as the benefits of productivity, increased volume/mix, and the net impact of pricing and raw material costs more than offset higher employee-related expense and transition costs associated with the European restructuring plan. Adjusted operating margin increased 40 basis points to 12.9 percent, rebounding from the third quarter level, as expected.

Retail Branding and Information Solutions

• Reported sales increased 4.2 percent; on an organic basis, sales grew 6.9 percent, driven by strength in both the base business and RFID.
• Reported operating margin increased 50 basis points to 11.6 percent as restructuring charges declined and the benefits from increased volume and productivity more than offset higher employee-related costs and growth-related investments. Adjusted operating margin increased 10 basis points to 12.2 percent.

Industrial and Healthcare Materials

• Reported sales declined 1.6 percent. On an organic basis, sales grew 0.7 percent, driven by solid growth in industrial categories in North America and Europe and healthcare globally, largely offset by a decline in industrial products for the North Asia market (a category that represents roughly 1 percent of total company sales).
• Reported operating margin increased 270 basis points to 10.3 percent, driven by productivity improvement initiatives and acquisition-related items. Adjusted operating margin increased 170 basis points to 9.6 percent.

Other

Share Repurchases / Equity Dilution from Long-Term Incentives

For the fourth quarter and full year 2018, the company repurchased 2.3 and 4.0 million shares, respectively, at an aggregate cost of $218 million and $393 million, respectively. Net of dilution, the company’s share count decreased by 4.0 million for the year.

Income Taxes

The company’s reported effective tax rate was negative 10.8 percent for the fourth quarter and positive 15.4 percent for the full year. The company’s adjusted (non-GAAP) tax rate was 25 percent for both the fourth quarter and full year; this rate excludes net tax benefits associated with the termination of our U.S. pension plan, a discrete foreign tax planning action, and the finalization of accounting for the Tax Cuts and Jobs Act (“TCJA”).

The company’s 2019 reported effective tax rate is expected to be in the single digit range, primarily due to the recognition of a discrete tax benefit of $70 million to $80 million upon completion of the transaction to terminate the U.S. pension plan. The company’s 2019 adjusted tax rate is expected to be in the mid-twenty percent range.

The company’s reported effective tax rate can vary widely from quarter to quarter due to interim reporting requirements and the recognition of discrete events.

Cost Reduction Actions

In the fourth quarter and full year 2018, the company realized approximately $5 million and $31 million, respectively, in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $8 million and $74 million, respectively, the majority of which represents cash charges.

U.S. Pension Plan Termination

In connection with the previously announced termination of the Avery Dennison Pension Plan, a tax-qualified U.S. defined benefit plan, the company contributed $200 million to the plan during the third quarter using commercial paper borrowings. The company anticipates it will contribute an additional $50 to 60 million during 2019, to fully fund the plan and complete the transaction.

The impact of actions connected with the plan termination and other pension settlements reduced reported EPS by $0.49, net of tax, in 2018. The company anticipates that the completion of the plan termination will reduce reported EPS by approximately $3.55 during the first quarter of 2019.

Financing

In December, the company issued $500 million of 4.875% Senior Notes due 2028. The company used the net proceeds from the issuance to repay commercial paper borrowings used to finance the contribution to our U.S. pension plan in the third quarter, as well as for other general corporate purposes.

Outlook

In its supplemental presentation materials, “Fourth Quarter and Full Year 2018 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2019 financial results. Based on the factors listed and other assumptions, the company expects 2019 reported earnings per share of $2.70 to $2.95.

Excluding an estimated $3.75 per share related to pension settlement charges, restructuring charges and other items, the company expects adjusted earnings per share of $6.45 to $6.70.

For more details on the company’s results, see the summary tables accompanying this news release, as well as the supplemental presentation materials, “Fourth Quarter and Full Year 2018 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.

Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.

Sales change ex. currency refers to the increase or decrease in sales excluding the estimated impact of currency translation and currency adjustment for transitional reporting of highly inflationary economies (Argentina). The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations. Organic sales change refers to sales change ex. currency, excluding the impact of product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year. Adjusted operating margin refers to income before taxes, interest expense, other non-operating expense, and other expense, net, as a percentage of sales.

About Avery Dennison

Avery Dennison (NYSE:AVY) is a global materials science company specializing in the design and manufacture of a wide variety of labeling and functional materials. The company’s products, which are used in nearly every major industry, include pressure-sensitive materials for labels and graphic applications; tapes and other bonding solutions for industrial, medical, and retail applications; tags, labels and embellishments for apparel; and radio frequency identification (RFID) solutions serving retail apparel and other markets. Headquartered in Glendale, California, the company employs approximately 30,000 employees in more than 50 countries. Reported sales in 2018 were $7.2 billion. Learn more at www.averydennison.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Certain statements contained in this document are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but are not limited to, risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; changes in political conditions; changes in governmental laws and regulations; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in customer preferences; fluctuations in cost and availability of raw materials; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, including the Tax Cuts and Jobs Act, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs, including risks related to the termination of our U.S. pension plan; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; protection and infringement of intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.

We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for our products and foreign currency fluctuations; (2) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume; (3) competitors’ actions, including pricing, expansion in key markets, and product offerings; and (4) the execution and integration of acquisitions.

For a more detailed discussion of these and other factors, see “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our 2017 Form 10-K, filed with the Securities and Exchange Commission on February 21, 2018, and subsequent quarterly reports on Form 10-Q. The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.

For more information and to listen to a live broadcast or an audio replay of the quarterly conference call with analysts, visit the Avery Dennison website at www.investors.averydennison.com.