Avery Dennison Announces Second Quarter 2013 Results

Avery Dennison Announces Second Quarter 2013 Results

• 2Q13 Reported EPS (including discontinued operations) of $0.68

  • Adjusted EPS (non-GAAP, continuing operations) of $0.71

• 2Q13 Net sales grew approx. 4 percent to $1.55 billion

  • Net sales up approx. 5 percent on organic basis

• Returned $205 million of cash to shareholders in the first half, including the repurchase of 3.5 million shares for $149 million

• Restructuring program achieved annualized savings of $105 million

• OCP and DES sale completed July 1; expect net proceeds of approx. $400 million

• Narrowed adjusted EPS guidance to $2.50 to $2.70, an increase of 28% to 38% compared to prior year

PASADENA, Calif.--(BUSINESS WIRE)-- Avery Dennison Corporation (NYS: AVY) today announced preliminary, unaudited results for its second quarter 2013 ended June 29, 2013. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, the discussion of the company's results is focused on its continuing operations, and comparisons are to the same period in the prior year. Results reflect classification of Office and Consumer Products (OCP) and Designed and Engineered Solutions (DES) as discontinued operations.

"I'm pleased to report another quarter of strong earnings growth, driven by restructuring and other productivity actions we initiated last year," said Dean Scarborough, Avery Dennison chairman, president and CEO. "Pressure-sensitive Materials continued to benefit from its leadership position in emerging markets, growth through innovation, and significant productivity gains. Retail Branding and Information Solutions delivered its fourth consecutive quarter of strong sales growth with continued margin expansion in the first half.

"We passed two significant milestones, delivering $105 million of restructuring savings and completing the sale of Office and Consumer Products and Designed and Engineered Solutions," Scarborough added. "We are committed to achieving our earnings and free cash flow targets, and to returning the vast majority of that cash to shareholders. In the first half, we distributed over $200 million to shareholders through dividends and the repurchase of 3.5 million shares."

For more details on the company's results, see the summary table accompanying this news release, as well as the supplemental presentation materials, "Second Quarter 2013 Financial Review and Analysis," posted on the company's website atwww.investors.averydennison.com, and furnished on Form 8-K with the SEC.

Second Quarter 2013 Results by Segment

All references to sales reflect comparisons on an organic basis, which exclude the estimated impact of currency translation, product line exits, acquisitions and divestitures. Adjusted operating margin refers to earnings before interest expense and taxes, excluding restructuring costs and other items, as a percentage of sales.

Pressure-sensitive Materials (PSM)

• PSM segment sales increased approximately 4 percent. Within the segment, Label and Packaging Materials sales increased mid-single digits. Combined sales for Graphics, Reflective, and Performance Tapes increased low single digits.

• Operating margin improved 180 basis points to 10.5 percent as the benefit of productivity initiatives, higher volume, and lower restructuring costs more than offset the impact of changes in product mix. Adjusted operating margin improved 130 basis points.

Retail Branding and Information Solutions (RBIS)

• RBIS segment sales increased approximately 8 percent driven by increased demand from U.S. and European retailers and brands.

• Operating margin declined 20 basis points to 5.6 percent due to higher restructuring costs. Adjusted operating margin improved 110 basis points as the benefit of productivity initiatives and higher volume more than offset higher employee-related expenses.

Other

Share Repurchases

The company repurchased 3.5 million shares in the first six months of 2013 at an aggregate cost of $149 million.

Discontinued Operations

On July 1, 2013, the company completed the sale of its OCP and DES businesses to CCL Industries Inc. for $500 million, subject to customary closing adjustments expected to be finalized by October 1, 2013.

The company expects net proceeds from the sale of approximately $400 million, which it intends to use to repurchase shares and reduce indebtedness, including an additional pension plan contribution.

Earnings from OCP and DES, and certain costs associated with these divestitures, are reported as income or loss from discontinued operations (net of tax) in the preliminary, unaudited consolidated statements of income. Net income (loss) per share from discontinued operations decreased from $0.15 to $(0.02).

Income Taxes

The second quarter effective tax rate was 35 percent. The year-to-date adjusted tax rate was 34 percent, comparable to prior year.

Cost Reduction Actions

In the first half of 2012, the company began a restructuring program to reduce costs across all segments of the business. The company achieved annualized savings of $105 million from this program. To implement these actions, the company incurred restructuring costs, net of gain on sale of assets, of approximately $4 million in the first half of 2013. The company expects to incur restructuring costs, net of gain on sale of assets, of $15 million in 2013.

Outlook

In its supplemental presentation materials, "Second Quarter 2013 Financial Review and Analysis," the company provides a list of factors that it believes will contribute to its 2013 financial results. Based on the factors listed and other assumptions, the company now expects 2013 earnings per share from continuing operations of $2.40 to $2.60. Excluding an estimated $0.10 per share for restructuring costs and other items, net of gain on sale of assets, the company expects adjusted (non-GAAP) earnings per share from continuing operations of $2.50 to $2.70. The company expects free cash flow from continuing operations in the range of $275 million to $315 million.

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

About Avery Dennison

Avery Dennison (NYS: AVY) is a global leader in labeling and packaging materials and solutions. The company's applications and technologies are an integral part of products used in every major market and industry. With operations in more than 50 countries and more than 26,000 employees worldwide, Avery Dennison serves customers with insights and innovations that help make brands more inspiring and the world more intelligent. Headquartered in Pasadena, California, the company reported sales from continuing operations of $6 billion in 2012. 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 not limited to risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; the financial condition and inventory strategies of customers; changes in customer order patterns; worldwide and local economic conditions; fluctuations in cost and availability of raw materials; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; fluctuations in foreign currency exchange rates and other risks associated with foreign operations; integration of acquisitions and completion of pending dispositions; 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; successful installation of new or upgraded information technology systems; 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; fluctuations in pension, insurance and employee benefit costs; impact of legal and regulatory proceedings, including with respect to environmental, health and safety; changes in governmental laws and regulations; changes in political conditions; 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 impact of economic conditions on underlying demand for our products; (2) competitors' actions, including pricing, expansion in key markets, and product offerings; and (3) 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.

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 the company's 2012 Form 10-K, filed on February 27, 2013 with the Securities and Exchange Commission, 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 the company undertakes 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 atwww.investors.averydennison.com