- 2Q18 Reported EPS of $1.07
- Adjusted EPS (non-GAAP) of $1.66
- 2Q18 Net sales increased 14.0% to $1.85
billion
- Sales change ex. currency (non-GAAP) of
10.0%
- FY18 Reported EPS guidance midpoint
reduced by $0.33, driven by ~$0.60 estimated impact of recently
announced termination of U.S. pension plan
- Raised FY18 guidance midpoint for
Adjusted EPS by $0.08
Avery Dennison Corporation (NYSE:AVY) today announced
preliminary, unaudited results for its second quarter ended June
30, 2018. All non-GAAP financial measures referenced in this
document are reconciled to GAAP in the attached tables. Unless
otherwise indicated, comparisons are to the same period in the
prior year.
“We had another good quarter, with strong top-line growth and
adjusted EPS up 27 percent, driven primarily by strong operating
results,” said Mitch Butier, President and CEO. “Label and Graphic
Materials delivered high-single digit organic growth and sustained
its strong operating margin; Retail Branding and Information
Solutions expanded its margin significantly on organic growth of
nearly 10 percent, driven by strength in both RFID and the base
business; and Industrial and Healthcare Materials delivered modest
organic growth with margin in line with expectations.
“Our current year outlook for adjusted earnings has improved
despite currency-related headwinds in the back half of the year,”
added Butier. “Our ability to consistently achieve our strategic
and financial goals in the face of significant changes in the macro
environment, including the strengthening of the dollar and higher
than expected inflation, demonstrates the resilience of our
business and the talent of our team.”
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 2018 Financial Review and
Analysis”, posted on the company’s website at
www.investors.averydennison.com, and furnished to the SEC on Form
8-K.
Second Quarter 2018 Results by
Segment
Sales change ex. currency refers to the increase or decrease in
sales excluding the estimated impact of foreign currency
translation. The estimated impact of foreign currency translation
is calculated on a constant currency basis, with prior period
results translated at current period average exchange rates to
exclude the effect of currency fluctuations. Organic sales change
refers to the increase or decrease in sales excluding the estimated
impact of foreign currency translation, product line exits, and
acquisitions and divestitures. Adjusted operating margin refers to
income before taxes, interest expense, other non-operating expense,
and other expense, net, as a percentage of sales.
Label and Graphic Materials
- Reported sales increased 11.9 percent;
on an organic basis, sales grew 7.3 percent. Sales on an organic
basis increased at high-single digit rates in both Label and
Packaging Materials and the combined Graphics and Reflective
Solutions businesses.
- Reported operating margin decreased 430
basis points to 9.2 percent, reflecting the impact of previously
announced restructuring plan. Adjusted operating margin decreased
10 basis points to 13.8 percent as the benefit from higher
volume/mix was more than offset by higher employee-related costs
and the net impact of pricing and raw material costs, excluding the
effects of currency.
Retail Branding and Information Solutions
- Reported sales increased 11.1 percent;
on an organic basis, sales grew 9.5 percent, driven by strength in
both radio frequency identification (RFID) solutions and the base
business.
- Reported operating margin increased 300
basis points to 10.9 percent as the benefits from higher volume,
productivity, and reduced amortization expense were partially
offset by higher employee-related costs and investments. Adjusted
operating margin increased 260 basis points to 11.2 percent.
Industrial and Healthcare Materials
- Reported sales increased 40.0 percent.
Sales ex. currency increased 35.3 percent; on an organic basis,
sales grew 3.1 percent. Sales in industrial categories grew
approximately 50 percent ex. currency and mid-single digits on an
organic basis. Sales in healthcare categories were up low-single
digits on an organic basis.
- Reported operating margin increased 10
basis points to 9.2 percent, as a decline in adjusted operating
margin was more than offset by the lack of M&A transaction
costs incurred in the prior year. Adjusted operating margin
declined 170 basis points to 9.3 percent, reflecting acquisition
effects and the net impact of pricing and raw material costs,
partially offset by the benefit of organic volume growth.
Other
Share Repurchases / Equity Dilution
The company repurchased 0.5 million shares in the second quarter
at an aggregate cost of $51 million. Net of dilution from long-term
incentives, the company’s share count at the end of the quarter was
down by 1.0 million compared to the same time last year.
Year-to-date, the company returned $188 million in cash to
shareholders through a combination of share repurchases and
dividends, up from $147 million for the same period last year.
Income Taxes
The second quarter GAAP effective tax rate was 31.4 percent, up
from 19.1 percent in the prior year. The full year GAAP effective
tax rate is estimated to be approximately 20 percent, reflecting
the effect of the anticipated third quarter pension contribution,
which is expected to be deducted on the company’s 2017 U.S. income
tax return.
The adjusted non-GAAP tax rate for the quarter was 25 percent,
consistent with the company’s previous guidance.
Cost Reduction Actions
In the second quarter, the company realized approximately $9
million in pretax savings from restructuring, net of transition
costs, and incurred pretax restructuring charges of approximately
$59 million. Most of these charges relate to severance costs
associated with a previously announced restructuring plan in
Europe, the vast majority of which will be paid in 2019.
U.S. Pension Plan Termination
As announced in a Form 8-K furnished on July 11, 2018, the
company has begun the process to terminate the Avery Dennison
Pension Plan, a tax-qualified U.S. defined benefit plan. The
company expects to contribute $200 million in cash to the plan in
2018, and an estimated $40 million in cash during 2019, to fully
fund the plan and complete the transaction. The company estimates
that the after-tax impact of actions connected with the termination
will reduce reported EPS by $0.50 to $0.70 in 2018, and an
additional $4.25 to $4.45 during 2019, reflecting estimated total
pre-tax settlement charges in the range of $575 million to $600
million.
Outlook
In its supplemental presentation materials, “Second Quarter 2018
Financial Review and Analysis,” the company provides a list of
factors that it believes will contribute to its 2018 financial
results. Based on the factors listed and other assumptions, the
company now expects 2018 reported earnings per share of $4.50 to
$4.85. Excluding an estimated $1.25 to $1.45 per share for
restructuring charges, pension settlement charges, and other items,
the company now expects adjusted earnings per share (non-GAAP) of
$5.95 to $6.10.
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 (NYSE: AVY) is a global materials science company
specializing in the design and manufacture of a wide variety of
labeling and functional materials. The company’s products, which
are used in nearly every major industry, include pressure-sensitive
materials for labels and graphic applications; tapes and other
bonding solutions for industrial, medical, and retail applications;
tags, labels and embellishments for apparel; and radio frequency
identification (RFID) solutions serving retail apparel and other
markets. Headquartered in Glendale, California, the company employs
approximately 30,000 employees in more than 50 countries. Reported
sales in 2017 were $6.6 billion. 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 are not limited to, risks and
uncertainties relating to the following: fluctuations in demand
affecting sales to customers; worldwide and local economic
conditions; changes in political conditions; changes in
governmental laws and regulations; fluctuations in foreign currency
exchange rates and other risks associated with foreign operations,
including in emerging markets; the financial condition and
inventory strategies of customers; changes in customer preferences;
fluctuations in cost and availability of raw materials; our ability
to generate sustained productivity improvement; our ability to
achieve and sustain targeted cost reductions; the impact of
competitive products and pricing; loss of significant contracts or
customers; collection of receivables from customers; selling
prices; business mix shift; execution and integration of
acquisitions; timely development and market acceptance of new
products, including sustainable or sustainably-sourced products;
investment in development activities and new production facilities;
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, including
cyber-attacks or other intrusions to network security; successful
installation of new or upgraded information technology systems;
data security breaches; 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; changes in tax laws and regulations, including the Tax Cuts
and Jobs Act, and uncertainties associated with interpretations of
such laws and regulations; outcome of tax audits; fluctuations in
pension, insurance, and employee benefit costs, including risks
related to the planned termination of our U.S. pension plan; the
impact of legal and regulatory proceedings, including with respect
to environmental, health and safety; protection and infringement of
intellectual property; the 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
impacts of global economic conditions and political uncertainty on
underlying demand for our products and foreign currency
fluctuations; (2) 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; (3)
competitors' actions, including pricing, expansion in key markets,
and product offerings; and (4) the execution and integration of
acquisitions.
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 our 2017 Form 10-K, filed
with the Securities and Exchange Commission on February 21, 2018,
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 we undertake 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 at
www.investors.averydennison.com
Second Quarter Financial Summary - Preliminary,
unaudited (In millions, except % and per share amounts)
% Change vs.
P/Y
2Q 2Q
Ex.
2018
2017
Reported
Currency
(a)
Organic
(b)
Net sales, by segment: Label and Graphic Materials
$
1,257.3 $ 1,123.1 11.9 % 7.3 %
7.3 % Retail Branding and Information Solutions
416.7
375.1 11.1 % 9.5 % 9.5 % Industrial and
Healthcare Materials
180.2 128.7
40.0 % 35.3 % 3.1 % Total net sales
$
1,854.2 $ 1,626.9 14.0 % 10.0 %
7.5 %
As Reported (GAAP) Adjusted Non-GAAP (c)
2Q 2Q % % of Sales 2Q 2Q
% % of Sales
2018
2017
Change
2018
2017
2018
2017
Change
2018
2017
Operating income (loss) / operating margins before interest, other
non-operating expense, and taxes, by segment: Label and Graphic
Materials
$ 115.5 $ 151.4 9.2
% 13.5 % $ 173.3 $ 156.4 13.8 % 13.9 % Retail
Branding and Information Solutions
45.3 29.5
10.9 % 7.9 % 46.7 32.3 11.2 % 8.6 %
Industrial and Healthcare Materials
16.6 11.7
9.2 % 9.1 % 16.8 14.1 9.3 % 11.0 %
Corporate expense
(20.6 ) (21.0
) (22.9 ) (21.0 ) Total operating income /
operating margins before interest, other non-operating expense, and
taxes
$ 156.8 $ 171.6 (9
%) 8.5 % 10.5 % $ 213.9 $ 181.8
18 % 11.5 % 11.2 % Interest expense
$ 14.3
$ 16.2 $ 14.3 $ 16.2 Other non-operating
expense (d)
$ 2.6 $ 5.9 $ 2.4 $ 5.9
Income before taxes
$ 139.9 $
149.5 (6 %) 7.5 % 9.2
% $ 197.2 $ 159.7 23 % 10.6 % 9.8 % Provision for
income taxes (e)
$ 43.9 $ 28.6 $ 49.3 $
41.9 Equity method investment net losses
($0.4
) --- ($0.4 ) --- Net income
$ 95.6
$ 120.9 (21 %) 5.2 %
7.4 % $ 147.5 $ 117.8 25 % 8.0 % 7.2 % Net
income per common share, assuming dilution
$ 1.07
$ 1.34 (20 %) $ 1.66 $ 1.31 27 %
2018
2017
2Q Free Cash Flow (f) $ 147.3 $ 115.1
YTD Free Cash Flow (f)
$
127.6
$
93.0
See accompanying schedules A-4 to A-8 for
reconciliations from GAAP to non-GAAP financial measures.
(a) Percentage change in sales excluding the estimated impact of
foreign currency translation. (b) Percentage change in sales
excluding the estimated impact of foreign currency translation,
product line exits, acquisitions and divestitures, and, where
applicable, the extra week in our fiscal year. (c) Excludes
impact of restructuring charges and other items. (d) In the
first quarter of 2018, we adopted ASU No. 2017-07, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost, on a retrospective basis. This ASU
requires employers with defined benefit plans to present the
components of net periodic benefit cost, other than service cost,
outside of operating income. Prior year results have been
reclassified as required by the ASU. "Other non-operating
expense" for the second quarter of 2018 includes pension settlement
of $.2. (e) We continue to assess our fourth quarter 2017
provisional estimate defined under SEC Staff Accounting Bulletin
No. 118 related to the U.S. Tax Cut and Jobs Act of 2017. There was
no significant impact to our provisional estimate as of the end of
the second quarter of 2018. We expect to complete our assessment
within the allowed one-year measurement period. (f) Free
cash flow refers to cash flow from operations, less payments for
property, plant and equipment, software and other deferred charges,
plus proceeds from sales of property, plant and equipment, plus
(minus) net proceeds from sales (purchases) of investments and
proceeds from insurance. Free cash flow will also be adjusted for
the cash contributions and cash tax effects of the planned
termination of our U.S. pension plan.
A-1
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (In millions, except per
share amounts) (UNAUDITED)
Three Months Ended Six Months Ended
Jun. 30, 2018 Jul. 1, 2017 Jun. 30, 2018
Jul. 1, 2017
Net sales $
1,854.2 $ 1,626.9 $ 3,630.6 $ 3,199.0 Cost of products sold
1,352.8 1,174.3 2,645.8 2,304.0
Gross
profit 501.4 452.6 984.8 895.0 Marketing, general and
administrative expense 287.5 270.8 582.5 550.6 Other
expense, net(1) 57.1 10.2 69.9 16.7 Interest expense 14.3
16.2 27.5 32.9 Other non-operating expense(2) 2.6 5.9 5.9
9.4
Income before taxes 139.9 149.5
299.0 285.4 Provision for income taxes(3) 43.9 28.6 77.2
52.3 Equity method investment net losses (0.4 ) --- (1.0 )
---
Net income $ 95.6 $ 120.9
$ 220.8 $ 233.1
Per share amounts:
Net income per common share, assuming dilution $ 1.07 $ 1.34
$ 2.47 $ 2.59
Weighted average
number of common shares outstanding, assuming dilution
89.0 89.9 89.4
90.0 (1) "Other expense, net"
for the second quarter of 2018 includes severance and related costs
of $58.8 and asset impairment and lease cancellation charges of
$.6, partially offset by gain on sale of assets of $2.3.
"Other expense, net" for the second quarter of 2017 includes
severance and related costs of $7.3, asset impairment and lease
cancellation charges of $.3, and transaction costs of $2.6.
"Other expense, net" for the first half of 2018 includes severance
and related costs of $63.1, asset impairment and lease cancellation
charges of $9, and other restructuring-related charge of $.5,
partially offset by net gain on sales of assets of $2.7.
"Other expense, net" for the first half of 2017 includes severance
and related costs of $13, asset impairment and lease cancellation
charges of $.3, and transaction costs of $3.4. (2) In the
first quarter of 2018, we adopted Accounting Standards Update (ASU)
No. 2017-07, Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost, on a
retrospective basis. This ASU requires employers with defined
benefit plans to present the components of net periodic benefit
cost, other than service cost, outside of operating income. Prior
year results have been reclassified as required by the ASU.
"Other non-operating expense" for the first half of 2018 includes
pension settlements of $.7. (3) We continue to assess our
fourth quarter 2017 provisional estimate defined under SEC Staff
Accounting Bulletin No. 118 related to the U.S. Tax Cut and Jobs
Act of 2017. There was no significant impact to our provisional
estimate as of the end of the second quarter of 2018. We expect to
complete our assessment within the allowed one-year measurement
period.
A-2
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED BALANCE SHEETS (In millions)
(UNAUDITED) ASSETS
Jun. 30, 2018
Jul. 1, 2017
Current assets: Cash and cash
equivalents $ 215.8 $ 209.4 Trade accounts receivable, net 1,236.2
1,138.1 Inventories, net 660.8 618.5 Assets held for sale 1.9 8.3
Other current assets 213.4 235.5
Total current assets 2,328.1 2,209.8 Property, plant
and equipment, net 1,084.5 1,017.8 Goodwill and other intangibles
resulting from business acquisitions, net 1,109.7 1,118.5
Non-current deferred income taxes 199.0 325.1 Other assets 441.8
420.6
$ 5,163.1 $
5,091.8
LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities:
Short-term borrowings and current portion of long-term debt and
capital leases $ 384.3 $ 444.0 Accounts payable 1,034.4 930.9 Other
current liabilities 690.5 597.5 Total current
liabilities 2,109.2 1,972.4 Long-term debt and capital
leases 1,289.7 1,276.3 Other long-term liabilities 742.3 773.3
Shareholders' equity: Common stock 124.1 124.1 Capital in excess of
par value 854.5 845.9 Retained earnings 2,702.1 2,621.8 Treasury
stock at cost (1,939.1 ) (1,805.6 ) Accumulated other comprehensive
loss (719.7 ) (716.4 ) Total shareholders'
equity 1,021.9 1,069.8 $
5,163.1 $ 5,091.8
A-3
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
(UNAUDITED) Six
Months Ended
Jun. 30, 2018
Jul. 1, 2017 Operating
Activities: Net income $ 220.8 $ 233.1
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 69.1 59.7
Amortization 20.2 31.1 Provision for doubtful accounts and
sales returns 23.1 19.8 Net losses from impairments, sales
of assets, and investment settlements 8.4 --- Stock-based
compensation 16.4 13.2 Loss from settlement of pension
obligations 0.7 --- Deferred income taxes (7.1 ) 6.0
Other non-cash expense and loss 28.1 28.1 Changes in assets
and liabilities and other adjustments (170.2 ) (215.4 )
Net cash provided by operating activities 209.5 175.6
Investing Activities: Purchases of property,
plant and equipment (79.5 ) (66.5 ) Purchases of software
and other deferred charges (13.9 ) (14.9 ) Proceeds from
sales of property, plant and equipment 9.3 0.2 Sales
(purchases) of investments and proceeds from insurance, net 2.2
(1.4 ) Payments for acquisitions, net of cash acquired, and
investments in businesses (0.2 ) (300.9 ) Net cash
used in investing activities (82.1 ) (383.5 )
Financing Activities: Net increase (decrease) in
borrowings (maturities of three months or less) 108.3 (159.5 )
Additional long-term borrowings --- 526.6
Repayments of long-term debt and capital
leases
(2.7 ) (1.5 ) Dividends paid (85.3 ) (76.2 ) Share
repurchases (102.9 ) (70.3 ) Proceeds from exercises of
stock options, net 0.2 17.5 Tax withholding for stock-based
compensation (32.6 ) (20.0 ) Payment of contingent
consideration (16.8 ) ---
Net
cash (used in) provided by financing activities (131.8 ) 216.6
Effect of foreign currency translation on cash
balances (4.2 ) 5.6 (Decrease) increase in cash and
cash equivalents (8.6 ) 14.3 Cash and cash equivalents,
beginning of year 224.4 195.1 Cash and cash
equivalents, end of period $ 215.8
$ 209.4
In the first quarter of 2018, we adopted ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments, on a
retrospective basis. This ASU reduces the diversity in the
presentation and classification of certain cash receipts and cash
payments in the statement of cash flows. Prior year results have
been reclassified as required by the ASU.
A-4
Reconciliation of Non-GAAP Financial
Measures to GAAP
We report our financial results in conformity with accounting
principles generally accepted in the United States of America, or
GAAP, and also communicate with investors using certain non-GAAP
financial measures. These non-GAAP financial measures are not in
accordance with, nor are they a substitute for or superior to, the
comparable GAAP financial measures. These non-GAAP financial
measures are intended to supplement presentation of our financial
results that are prepared in accordance with GAAP. Based upon
feedback from investors and financial analysts, we believe that the
supplemental non-GAAP financial measures we provide are useful to
their assessment of our performance and operating trends, as well
as liquidity.
Our non-GAAP financial measures exclude the impact of certain
events, activities or strategic decisions. The accounting effects
of these events, activities or decisions, which are included in the
GAAP financial measures, may make it difficult to assess our
underlying performance in a single period. By excluding the
accounting effects, both positive or negative, of certain items
(e.g., restructuring charges, legal settlements, certain effects of
strategic transactions and related costs, losses from debt
extinguishments, gains and losses from curtailment and settlement
of pension obligations, gains or losses on sales of certain assets,
and other items), we believe that we are providing meaningful
supplemental information that facilitates an understanding of our
core operating results and liquidity measures. These non-GAAP
financial measures are used internally to evaluate trends in our
underlying performance, as well as to facilitate comparison to the
results of competitors for a single period. While some of the items
we exclude from GAAP financial measures recur, they tend to be
disparate in amount, frequency, or timing.
We use the following non-GAAP financial measures in the
accompanying news release and presentation:
Sales change ex. currency refers to the increase or decrease in
sales excluding the estimated impact of foreign currency
translation. The estimated impact of foreign currency translation
is calculated on a constant currency basis, with prior period
results translated at current period average exchange rates to
exclude the effect of currency fluctuations.
Organic sales change refers to the increase or decrease in sales
excluding the estimated impact of foreign currency translation,
product line exits, acquisitions and divestitures, and, where
applicable, the extra week in our fiscal year.
We believe that sales change ex. currency and organic sales
change assist investors in evaluating the sales growth from the
ongoing activities of our businesses and provide greater ability to
evaluate our results from period to period.
Adjusted operating income refers to income before taxes,
interest expense, other non-operating expense, and other expense,
net.
Adjusted operating margin refers to adjusted operating income as
a percentage of sales.
Adjusted tax rate refers to the projected full-year GAAP tax
rate, adjusted to exclude certain unusual or infrequent events that
are expected to significantly impact the GAAP tax rate, such as
updates to the year-end 2017 TCJA provisional amount, as well as
additional items which could include other impacts related to the
planned U.S. pension plan termination and the effects of certain
potential tax planning actions.
Adjusted net income refers to income before taxes, tax-effected
at the adjusted tax rate, and adjusted for tax-effected
restructuring charges and other items.
Adjusted net income per common share, assuming dilution
(adjusted EPS) refers to adjusted net income divided by weighted
average number of common shares outstanding, assuming dilution.
We believe that adjusted operating margin, adjusted net income,
and adjusted EPS assist investors in understanding our core
operating trends and comparing our results with those of our
competitors.
Free cash flow refers to cash flow from operations, less
payments for property, plant and equipment, software and other
deferred charges, plus proceeds from sales of property, plant and
equipment, plus (minus) net proceeds from sales (purchases) of
investments and proceeds from insurance. Free cash flow will also
be adjusted for the cash contributions and cash tax effects of the
planned termination of our U.S. pension plan. We believe that free
cash flow assists investors by showing the amount of cash we have
available for debt reductions, dividends, share repurchases, and
acquisitions.
The following reconciliations are provided in accordance with
Regulations G and S-K and reconcile our non-GAAP financial measures
with the most directly comparable GAAP financial measures.
A-5
AVERY DENNISON CORPORATION PRELIMINARY RECONCILIATION
FROM GAAP TO NON-GAAP FINANCIAL MEASURES (In millions,
except % and per share amounts)
(UNAUDITED) Three Months Ended Six Months
Ended Jun. 30, 2018 Jul. 1, 2017 Jun.
30, 2018 Jul. 1, 2017
Reconciliation from GAAP to Non-GAAP operating margins:
Net sales $ 1,854.2 $ 1,626.9 $ 3,630.6 $ 3,199.0
Income before
taxes $ 139.9 $ 149.5 $ 299.0 $ 285.4
Income before taxes as a percentage of sales 7.5 % 9.2 % 8.2 % 8.9
%
Adjustments: Interest expense $ 14.3 $
16.2 $ 27.5 $ 32.9 Other non-operating expense 2.6 5.9 5.9 9.4
Operating
income before interest expense, other non-operating expense, and
taxes $ 156.8 $ 171.6 $ 332.4 $ 327.7
Operating margins 8.5 % 10.5 % 9.2 % 10.2 %
Income before taxes $ 139.9 $ 149.5 $ 299.0 $ 285.4
Adjustments: Restructuring charges: Severance
and related costs 58.8 7.3 63.1 13.0 Asset impairment and
lease cancellation charges 0.6 0.3 9.0 0.3 Other
restructuring-related charge --- --- 0.5 --- Net gain on
sales of assets (2.3 ) --- (2.7 ) --- Transaction costs ---
2.6 --- 3.4 Interest expense 14.3 16.2 27.5 32.9
Other non-operating expense 2.6 5.9 5.9 9.4
Adjusted operating income before
interest expense, other non-operating expense, and taxes (non-GAAP)
$ 213.9 $ 181.8 $ 402.3 $ 344.4 Adjusted operating
margins (non-GAAP) 11.5 % 11.2 % 11.1 % 10.8 %
Reconciliation from GAAP to Non-GAAP net income: As
reported net income $ 95.6 $ 120.9 $ 220.8 $ 233.1
Adjustments: Restructuring charges 59.4 7.6 72.1 13.3 Other
restructuring-related charge --- --- 0.5 --- Net gain on sales of
assets (2.3 ) --- (2.7 ) --- Transaction costs --- 2.6 --- 3.4
Pension settlements 0.2 --- 0.7 --- Tax effect on pre-tax
adjustments and impact of adjusted tax rate(1) (5.4 ) (13.3 ) (15.2
) (32.3 ) Adjusted net income (non-GAAP) $ 147.5 $
117.8 $ 276.2 $ 217.5
A-5(continued)
AVERY DENNISON CORPORATION PRELIMINARY RECONCILIATION
FROM GAAP TO NON-GAAP FINANCIAL MEASURES (In millions,
except % and per share amounts)
(UNAUDITED) Three Months Ended
Six Months Ended Jun. 30, 2018
Jul. 1, 2017 Jun. 30, 2018 Jul. 1, 2017
Reconciliation from
GAAP to Non-GAAP net income per common share: As
reported net income per common share, assuming dilution $ 1.07 $
1.34 $ 2.47 $ 2.59 Adjustments per common share, net of tax:
Restructuring charges, other restructuring-related charge,
pension settlements, transaction costs, and net gain on sales of
assets(1) 0.59 (0.03 ) 0.62 (0.17)
Adjusted net income per common share,
assuming dilution (non-GAAP) $ 1.66 $ 1.31 $ 3.09 $
2.42
Weighted average
number of common shares outstanding, assuming dilution 89.0
89.9 89.4 90.0
(1) The adjusted tax rate was 25% for the three and six months
ended June 30, 2018, and 26% and 28% for the three and six months
ended July 1, 2017, respectively.
(UNAUDITED) Three Months
Ended Six Months Ended Jun. 30, 2018
Jul. 1, 2017 Jun. 30, 2018 Jul. 1, 2017
Reconciliation of free cash flow: Net cash
provided by operating activities $ 193.5 $ 161.7 $ 209.5 $ 175.6
Purchases of property, plant and equipment (43.9 ) (36.2 )
(79.5 ) (66.5 ) Purchases of software and other deferred
charges (6.6 ) (8.0 ) (13.9 ) (14.9 ) Proceeds from sales of
property, plant and equipment 2.4 0.2 9.3 0.2 Sales
(purchases) of investments and proceeds from insurance, net 1.9
(2.6 ) 2.2 (1.4 )
Free cash flow (non-GAAP)
$ 147.3 $ 115.1 $ 127.6 $ 93.0
A-6
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Second Quarter Ended NET
SALES OPERATING INCOME (LOSS) OPERATING MARGINS 2018 2017
2018(1)
2017(2)
2018 2017 Label and Graphic Materials $ 1,257.3 $ 1,123.1 $
115.5 $ 151.4 9.2 % 13.5 % Retail Branding and Information
Solutions 416.7 375.1 45.3 29.5 10.9 % 7.9 % Industrial and
Healthcare Materials 180.2 128.7 16.6 11.7 9.2 % 9.1 % Corporate
Expense N/A N/A (20.6 ) (21.0 ) N/A
N/A TOTAL FROM OPERATIONS $ 1,854.2 $ 1,626.9
$ 156.8 $ 171.6 8.5 % 10.5 %
(1) Operating income for the second quarter of 2018 includes
severance and related costs of $58.8 and asset impairment and lease
cancellation charges of $.6, partially offset by gain on sale of
assets of $2.3. Of the total $57.1, the Label and Graphic Materials
segment recorded $57.8, the Retail Branding and Information
Solutions segment recorded $1.4, the Industrial and Healthcare
Materials segment recorded $.2, and Corporate recorded ($2.3).
(2) Operating income for the second quarter of 2017 includes
severance and related costs of $7.3, asset impairment and lease
cancellation charges of $.3, and transaction costs of $2.6. Of the
total $10.2, the Label and Graphic Materials segment recorded $5,
the Retail Branding and Information Solutions segment recorded
$2.8, and the Industrial and Healthcare Materials segment recorded
$2.4.
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY
INFORMATION Second Quarter Ended OPERATING
INCOME OPERATING MARGINS 2018 2017 2018 2017
Label and Graphic
Materials
Operating income and margins, as reported $ 115.5 $ 151.4 9.2 %
13.5 % Adjustments: Restructuring charges: Severance and related
costs 57.8 4.7 4.6 % 0.4 % Asset impairment charges --- 0.1 --- ---
Transaction costs --- 0.2 --- ---
Adjusted operating income and margins (non-GAAP) $ 173.3 $ 156.4
13.8 % 13.9 %
Retail Branding
and Information Solutions
Operating income and margins, as reported $ 45.3 $ 29.5 10.9 % 7.9
% Adjustments: Restructuring charges: Severance and related costs
0.8 2.6 0.2 % 0.7 % Asset impairment and lease cancellation charges
0.6 0.2 0.1 % --- Adjusted operating income
and margins (non-GAAP) $ 46.7 $ 32.3 11.2 % 8.6 %
Industrial and
Healthcare Materials
Operating income and margins, as reported $ 16.6 $ 11.7 9.2 % 9.1 %
Adjustments: Restructuring charges: Severance and related costs 0.2
--- 0.1 % --- Transaction costs --- 2.4 ---
1.9 % Adjusted operating income and margins (non-GAAP) $ 16.8 $
14.1 9.3 % 11.0 %
A-7
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Six Months Year-to-Date NET
SALES OPERATING INCOME OPERATING MARGINS 2018 2017
2018(1)
2017(2)
2018 2017 Label and Graphic Materials $
2,475.5 $ 2,212.7 $ 265.2 $ 289.1 10.7 % 13.1 % Retail Branding and
Information Solutions 802.7 741.9 80.0 56.8 10.0 % 7.7 % Industrial
and Healthcare Materials 352.4 244.4 29.6 24.9 8.4 % 10.2 %
Corporate Expense N/A N/A (42.4 )
(43.1 ) N/A N/A TOTAL FROM
OPERATIONS $ 3,630.6 $ 3,199.0 $ 332.4 $ 327.7
9.2 % 10.2 %
(1) Operating income for the first half of 2018 includes
severance and related costs of $63.1, asset impairment and lease
cancellation charges of $9, and other restructuring-related charge
of $.5, partially offset by net gain on sales of assets of $2.7. Of
the total $69.9, the Label and Graphic Materials segment recorded
$65.9, the Retail Branding and Information Solutions segment
recorded $6.1, the Industrial and Healthcare Materials segment
recorded $.2, and Corporate recorded ($2.3).
(2) Operating income for the first half of 2017 includes
severance and related costs of $13, asset impairment and lease
cancellation charges of $.3, and transaction costs of $3.4. Of the
total $16.7, the Label and Graphic Materials segment recorded $7.2,
the Retail Branding and Information Solutions segment recorded
$6.6, and the Industrial and Healthcare Materials segment recorded
$2.9.
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY
INFORMATION Six Months Year-to-Date
OPERATING INCOME OPERATING MARGINS 2018
2017 2018 2017
Label and Graphic
Materials
Operating income and margins, as reported $ 265.2 $ 289.1 10.7 %
13.1 % Adjustments: Restructuring charges: Severance and related
costs 58.4 6.7 2.4 % 0.3 % Asset impairment charges 6.9 0.1 0.3 %
--- Other restructuring-related charge 0.5 --- --- --- Loss on sale
of assets 0.1 --- --- --- Transaction costs ---
0.4 --- --- Adjusted operating
income and margins (non-GAAP) $ 331.1 $ 296.3 13.4 %
13.4 %
Retail Branding
and Information Solutions
Operating income and margins, as reported $ 80.0 $ 56.8 10.0 % 7.7
% Adjustments: Restructuring charges: Severance and related costs
4.5 6.1 0.5 % 0.8 % Asset impairment and lease cancellation charges
2.1 0.2 0.3 % --- Net gain on sales of assets (0.5 ) --- (0.1 %)
--- Transaction costs related to sale of product line ---
0.3 --- --- Adjusted
operating income and margins (non-GAAP) $ 86.1 $ 63.4
10.7 % 8.5 %
Industrial and
Healthcare Materials
Operating income and margins, as reported $ 29.6 $ 24.9 8.4 % 10.2
% Adjustments: Restructuring charges: Severance and related costs
0.2 0.2 0.1 % 0.1 % Transaction costs ---
2.7 --- 1.1 % Adjusted operating income
and margins (non-GAAP) $ 29.8 $ 27.8 8.5 %
11.4 %
A-8
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY
INFORMATION
(UNAUDITED)
Second Quarter 2018
TotalCompany
Label andGraphicMaterials
Retail Brandingand
InformationSolutions
Industrial andHealthcareMaterials
Reconciliation from GAAP to Non-GAAP sales change
Reported sales change 14.0 % 11.9 % 11.1 % 40.0 %
Foreign currency translation (4.0 %) (4.6 %)
(1.6 %) (4.7 %) Sales change ex. currency (non-GAAP)
10.0 % 7.3 % 9.5 % 35.3 % Acquisitions (2.5 %)
--- --- (32.2 %) Organic sales
change (non-GAAP) 7.5 % 7.3 % 9.5 %
3.1 %
Six Months Year-to-Date 2018
TotalCompany
Label andGraphicMaterials
Retail Brandingand
InformationSolutions
Industrial andHealthcareMaterials
Reconciliation from GAAP to Non-GAAP sales change Reported
sales change 13.5 % 11.9 % 8.2 % 44.2 % Foreign currency
translation (5.1 %) (6.1 %) (1.8 %)
(5.6 %) Sales change ex. currency (non-GAAP)(1) 8.4 % 5.8 %
6.3 % 38.5 % Acquisitions (2.9 %) (0.3 %)
--- (35.6 %) Organic sales change
(non-GAAP)(1) 5.5 % 5.4 % 6.3 %
3.0 %
(1) Totals may not sum due to rounding
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180724005323/en/
Avery Dennison CorporationMedia Relations:Rob Six,
626-304-2361rob.six@averydennison.comorInvestor Relations:Cynthia
S. Guenther, 626-304-2204investorcom@averydennison.com
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