What to Expect from Avery Dennison (AVY) in Q4 Earnings?

Avery Dennison Corporation AVY is slated to release fourth-quarter 2017 results on Jan 31 before the opening bell.

In the last reported quarter, the company recorded year-over-year improvement in both its top and bottom lines. Further, the company delivered a positive earnings surprise of 4.1% in the last reported quarter. It is worth noting that Avery Dennison has outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average positive earnings surprise of 6.9%.

Let’s take a look at how things are shaping up prior to this announcement.

Avery Dennison Corporation Price and EPS Surprise

Avery Dennison’s Label and Graphic Materials segment is the largest and highest-return business. The segment will benefit from growth in emerging market regions including high-single digit growth in India and China. Moreover, recently announced selling price increases should benefit the profitability in the fourth quarter.

In the Industrial and Healthcare Materials segment, the company will continue to witness solid organic growth for both the industrial and the health care categories. The segment will also gain from the Yongle, Finesse and Mactac acquisitions. Further, focus on efforts to drive productivity, while continuing to invest to support growth will support margins in the to-be-reported quarter.

The Retail Branding and Information Solutions segment continues to perform well on the back of business model transformation. This has enabled it to gain share market share, while driving significant margin expansion. Avery Dennison has increased the segment’s competitiveness through strategic pricing initiatives. Margins are likely to improve exhibiting the benefits of productivity initiatives and higher volume. Growing adoption of RFID (Radio-frequency identification) by retailers due to growth of omni-channel retailing as well as the requirement to locate inventories at all times is fueling demand. Consequently, RFID sales, which increased a substantial 25% year over year in the third quarter, will continue to boost the segment’s sales in the next quarter as well.

Meanwhile, modest sequential raw material inflation will hinder Avery Dennison’s fourth-quarter performance. Further, higher debt levels following the Yongle and Finesse acquisitions remain a concern.

Nevertheless, the Zacks Consensus Estimate for the fourth quarter is currently pegged at $1.25, reflecting year-over-year growth of 26.3%. The estimate for revenues is pegged at $1.7 billion, projecting a 9.8% year-over-year climb. Focus on productivity, acquisitions, aggressive cost control and share repurchases will drive the results. Moreover, its consistent execution of strategies continues to enhance competitive advantage while driving profitable growth.

Further, Avery Dennison’s shares have outperformed the industry’s performance in the past year. The stock has gained 62.7%, compared with the industry's growth of 51.8%.

Our proven model does not conclusively show an earnings beat for Avery Dennison in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.25. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Avery Dennison carries a Zacks Rank #3, which increases the predictive power of the ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Deere & Company DE has an Earnings ESP of +2.65% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. Deere’s shares have surged 58% in the past year.

iRobot Corporation IRBT has an Earnings ESP of +20.00% and a Zacks Rank #2. Its shares have gone up 53% in a year’s time.

The Earnings ESP for Graphic Packaging Holding Company GPK is +0.52%. It carries a Zacks Rank #2. Shares of Graphic Packaging have surged 32% in a year’s time.

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