Avery Dennison Corporation (AVY) reported adjusted earnings of 80 cents per share in the second quarter of 2014, up 12.7% from 71 cents earned in the year-ago quarter. The results beat the Zacks Consensus Estimate by a penny.
Including restructuring costs and other items, earnings from continuing operations were 46 cents per share in the quarter, compared with 70 cents in the year-ago quarter.
Total revenue increased 4% (organic as well as on reported basis) to $1.62 billion from $1.55 billion in the prior-year quarter, surpassing the Zacks Consensus Estimate of $1.61 billion. Year-over-year sales growth was driven by strong volume growth in Pressure-sensitive Materials.
Cost of sales in the reported quarter rose 4.7% year over year to $1.19 billion. Gross profit increased 2.7% to $428.2 million from $417.5 million in the prior-year quarter. However, gross margin contracted 40 basis points (bps) to 26.5%.
Marketing, general and administrative expenses were $297 million versus $293.5 million in the year-ago quarter. Adjusted operating profit increased 6% to $131.2 million. Adjusted operating margin improved 10 bps to 8.1% on a year-over-year basis.
Segmental Performance
Total revenue in the Pressure-sensitive Materials segment increased 6% to $1.18 billion. Label and Packaging Materials sales rose in the mid-single digits. Moreover, sales for Graphics, Reflective and Performance Tapes increased in the low-double digits. Adjusted operating profit remained flat at $119 million in the quarter compared with the year-ago quarter.
Total revenue from Retail Branding and Information Solutions segment declined 1% to $414.4 million from $419.6 million in the year-earlier quarter due to decreased demand from U.S. based retailers and brands, partly offset by increased demand from European retailers and brands. The segment’s adjusted operating income rose 14.5% to $33.9 million.
Vancive Medical Technologies segment reported net sales of $20.5 million, up 9% from $18.8 million in the year-ago quarter. The segment reported an operating loss of $1.7 million, narrower than the year-ago quarter loss of $2.8 million.
Financial Updates
Avery ended the quarter with cash and cash equivalents of $221.9 million, up from $211.6 million at the prior-year quarter-end. Cash provided by operating activities for the period of six months ended Jun 28, 2014 was $9.8 million compared with $46.7 million in the year-ago period.
Long-term debt of the company decreased to $945.2 million as of Jun 28, 2014 from $951.4 million as of Jun 29, 2013. Debt-to-capitalization ratio contracted to 45.1% as of Jun 28, 2014 from 47.8% as of Jun 29, 2013. The company repurchased 3.1 million shares in the first half of 2014 at an aggregate cost of $153 million.
Cost Reduction Activities
In the second quarter, the company realized approximately $10 million of savings from the restructuring. Moreover, it incurred restructuring costs of around $40 million in the reported quarter.
Fiscal 2014 Outlook
Avery raised its full-year 2014 outlook for adjusted earnings per share from the range of $2.90—$3.20 to $3.00—$3.10. Including an estimated $0.35 per share for restructuring costs and other items, the company increased earnings guidance in the range of $2.65—$2.75 from $2.60—$2.90 per share.
However, the company has lowered the guidance for full-year adjusted earnings per share growth to 12%–16% from its previous range of 8%–19%. The company expects to incur cash restructuring costs of $50 million in 2014.
Pasadena, CA-based Avery Dennison manufactures pressure-sensitive materials and tickets, tags, labels and other converted products. The company has over 200 manufacturing and distribution facilities in more than 60 countries.
Currently, Avery has a Zacks Rank #3 (Hold). Among better-ranked stocks from the sector Blount International Inc. (BLT) sports a Zacks Rank #1 (Strong Buy).
Avery’s peer, ACCO Brands Corp. (ACCO) will announce its second-quarter 2014 results on Jul 30 and CompX International Inc. (CIX) is expected to report its second-quarter results soon.
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