Tags: Avery | Dennison | recession | AVY

Avery Dennison Feeling Heat from Global Recession

Friday, 13 Apr 2012 05:36 PM

By Greg Brown

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Avery Dennison (AVY) is feeling the heat from higher raw materials costs amid a global recession, one it hopes to head off by watching costs and preparing for a rebound in demand.

Avery Dennison makes pressure-sensitive materials such as tickets, tags, and labels for consumer and office use. It also sells radio-frequency identification (RFID) inlays and equipment for apparel makers that put print on clothing.

The business is broken down into two segments, pressure-sensitive materials and retail branding and information solutions. Pressure-sensitive materials provided 66 percent of revenues, while retail branding and information was 25 percent.

In 2011, Avery Dennison agreed to sell its office and consumer products division to 3M Company for $550 million in cash.

International operations were 73 percent of sales in 2011. The company has 200 manufacturing and distribution facilities worldwide and 30,000 employees in 60 countries.

Raw materials costs collided with slack demand to crimp results in the latest results. The company posted earnings per share of 39 cents in the fourth quarter of 2011, below the market consensus of 46 cents.

“For 2012, the economic environment remains uncertain, especially in Europe, and we're assuming a continued lack of momentum. We expect modest growth in sales with higher contributions from emerging markets,” said Dean A. Scarborough, chairman, president and CEO of Avery Dennison, in a call with analysts.

“We'll continue to focus on increasing our operational efficiency and we expect to see improvement in earning and another year of solid free cash flow.”

Volume declines


Avery Dennison is a $3.23 billion market cap stock, about twice the size of the average company in its sector, commercial services and supplies. Its trailing 12-month P/E is 21.13 and its projected five-year price-to-earnings-growth (PEG) ratio is 3.58, compared to 2.09 for the sector.

Project earnings per share growth in the coming year is 20.51 percent, better than the sector at 14.39 percent.

Analysts are bearish on Avery Dennison, offering a flock of neutral positions with a few underperform ratings, including from Standard & Poor’s.

“Recent results at AVY have been disappointing, in our view, due to volume declines. The current uncertain economic environment makes us cautious on near-term growth prospects,” S&P analysts wrote in early February.

Avery Dennison next reports on April 25.

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