Avery Dennison Corporation (AVY) has reported fiscal 2011 second quarter earnings per share (EPS) of 69 cents versus 78 cents in the year-earlier quarter.
The company incurred restructuring costs of 9 cents in the quarter, excluding which adjusted EPS was 78 cents, down from 94 cents in the year-ago quarter but ahead of the Zacks Consensus Estimate of 75 cents.
Total revenue in the second quarter increased to $1.72 billion from $1.68 billion in the prior-year quarter, but failed to meet the Zacks Consensus Estimate of $1.77 billion. The increase in sales is attributable to the sharp volume increase in Avery’s two largest segments — Pressure-sensitive Materials and Retail Branding and Information Solutions.
Costs and Margins
Cost of sales during the reported quarter increased to $1.25 billion from $1.19 billion in the year-earlier quarter. However, gross profit declined to $470.9 million from $490.4 million in the prior-year quarter. Consequently, gross margin declined 190 basis points year over year to 27.3%.
Marketing, general & administrative expenses declined to $330.0 million from $338.9 million in the year-ago quarter. Operating income plunged to $128.5 million from $146.9 million in the year-earlier quarter, thereby contracting operating margins 130 basis points year over year to 7.4%.
Segmental Performance
Net sales in the Pressure-sensitive Materials segment were up 7% on a year-over-year basis at $984.5 million. Label and Packaging Materials sales were more or less flat with the prior-year quarter, due to the negative impact of productivity initiatives and lower employee-related costs on volumes. Consequently, operating profit also increased to $89.2 million from $87.5 million in the year-earlier quarter.
Total revenue from Retail Branding and Information Solutions declined to $396.4 million from $411.9 million in the year-earlier quarter. Decline in sales was attributable to lower demand from retailers and brands in the U.S. and Europe. Segmental operating income also declined to $26.9 million from $35.6 million in the prior-year quarter.
The Office and Consumer Products segment reported a decrease of 2.0%, pulling down revenue to $204.1 million from $208.9 million in the year-earlier quarter. Sales declined due to weak end-market demand. Operating income also reported a decline of $9.9 million in the reported quarter from $31.5 million in the year-ago quarter.
Other specialty converting businesses segment reported net sales of $140.7 million, up from $135.4 million in the year-ago quarter. Sales were more or less flat with the prior-year level. Income from operations saw an uptick to $5.0 million from $4.2 million in the prior-year quarter.
Financial Position
Cash from operating activities was an outflow of $95.2 million at the end of the second quarter compared with an inflow of $143.1 million at the end of the year-ago comparable quarter. Free cash flow during the same period was also an outflow of $165.1 million versus an inflow of $105.7 million during the year-earlier period.
As of July 2, 2011, cash and cash equivalents declined to $125.4 million from $148.9 million as of July 3, 2010.
As of July 2, 2011, debt-to-capitalization ratio saw a significant improvement to 53.0% compared with 55.0% as of April 2, 2011 and 58% as of January 2, 2011.
Outlook
For fiscal 2011, management provided full-year adjusted EPS guidance in the range of $2.45 and $2.75 and expects free cash flow between $250.0 million and $275.0 million.
Our Take
The company remains committed to research and development as well as the discovery of new markets for its products. We believe Avery is well positioned to fare well in the upcoming quarters based on its dominant market share in emerging economies coupled with a solid cash position and lower debt levels.
However, weak results at the Office and Consumer Products segment and raw material inflation remain concerns. We currently have a Zacks #5 Rank (short-term Strong Sell recommendation) on the stock.
Pasadena, California-based Avery Dennison produces pressure-sensitive materials, office products and a variety of tickets, tags, labels and other converted products. Avery is a Fortune 500 company operating over 200 manufacturing and distribution facilities with roughly 32,000 employees in more than 60 countries. It competes with Bemis Company Inc. (BMS) and Fortune Brands Inc. (FO).
AVERY DENNISON (AVY): Free Stock Analysis Report
BEMIS (BMS): Free Stock Analysis Report
FORTUNE BRANDS (FO): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment