- 4Q19 Reported EPS of $1.92
- Adjusted EPS (non-GAAP) of $1.73
- 4Q19 Net sales increased 0.2% to $1.77 billion
- Organic sales growth (non-GAAP) of 2.1%
- FY19 Reported EPS of $3.57, incl. pension settlement charges
- FY19 Net sales decreased 1.2% to $7.07 billion
- Organic sales growth of 2.0%
- Returned $427 mil. to shareholders via share repurchase and
dividends in 2019
- Expect FY20 Reported EPS of $6.75 to $7.00
- Adjusted EPS of $6.90 to $7.15
Avery Dennison Corporation (NYSE:AVY) today announced
preliminary, unaudited results for its fourth quarter and year
ended December 28, 2019. Non-GAAP financial measures referenced in
this document are reconciled to GAAP in the attached tables. Unless
otherwise indicated, comparisons are to the same periods in the
prior year.
“We delivered another year of strong adjusted earnings growth in
2019, despite challenging market conditions and significant
currency headwinds,” said Mitch Butier, Chairman, President and
CEO. “Our focus in this environment is on protecting our margins in
the base business, while driving faster-than-average growth and
continuing to invest disproportionately in high value categories
like RFID. We are executing well on both fronts.
“Label and Graphic Materials delivered solid volume improvement
in the second half while expanding margins, recapturing share that
we ceded at the tail end of the last inflationary cycle, as
planned. Retail Branding and Information Solutions delivered
mid-teens profit growth, reflecting both strong top-line
performance and continued margin expansion. And, in a difficult
year for industrial end markets, Industrial and Healthcare
Materials posted modest sales growth while expanding margins
significantly.
“For 2020, we are targeting continued progress toward our 2021
goals,” added Butier. “We anticipate solid earnings growth,
benefiting from our improved volume trend. We continue our
relentless pursuit of productivity, triggering the next wave of
restructuring savings, while investing to drive future growth and
strengthen our competitive advantage, including our recently
announced acquisition of Smartrac.
“We remain confident that the consistent execution of our
strategies will enable us to continue to deliver for all of our key
stakeholders. I would like to thank our employees for their
dedication to creating superior value for our customers, investors,
and the communities in which we operate through their constant
focus on innovation and operational excellence.”
Fourth Quarter 2019 Results by
Segment
Label and Graphic Materials
- Reported sales decreased 0.4 percent. On an organic basis,
sales grew 1.5 percent, driven by volume/mix, partially offset by
pricing. Sales increased low-single digits on an organic basis in
Label and Packaging Materials, and decreased low-single digits on
an organic basis in the combined Graphics and Reflective Solutions
businesses.
- Reported operating margin decreased 70 basis points to 12.0
percent as the benefits of productivity initiatives and the net
impact of raw material deflation and pricing were more than offset
by higher restructuring charges and unfavorable product mix.
Adjusted operating margin increased 40 basis points to 13.3
percent.
Retail Branding and Information Solutions
- Reported sales increased 3.6 percent; on an organic basis,
sales grew 5.2 percent, driven by continued strength in RFID and
external embellishments.
- Reported operating margin decreased 10 basis points to 11.5
percent as the benefits from increased volume and productivity were
more than offset by higher employee-related costs, restructuring
charges, and growth-related investments. Adjusted operating margin
increased 140 basis points to 13.6 percent.
Industrial and Healthcare Materials
- Reported sales declined 3.1 percent. On an organic basis, sales
fell 1.1 percent, reflecting a mid-single digit decline in
healthcare categories, partially offset by a low-single digit
increase in industrial categories.
- Reported operating margin decreased 310 basis points to 7.2
percent, reflecting higher restructuring charges and
employee-related costs that more than offset the benefits of
productivity gains and strategic pricing initiatives. Adjusted
operating margin increased 60 basis points to 10.2 percent.
Other
Share Repurchases / Equity Dilution from Long-Term
Incentives
For the fourth quarter and full year 2019, the company
repurchased 0.3 and 2.2 million shares, respectively, at an
aggregate cost of $33 million and $238 million, respectively. Net
of dilution, the company’s share count decreased by 1.5 million for
the year.
In 2019, the company returned $427 million in cash to
shareholders through a combination of share repurchases and
dividends.
Income Taxes
The company’s reported effective tax rate was positive 1.3
percent for the fourth quarter and negative 22.7 percent for the
full year. The company’s adjusted (non-GAAP) tax rate was 24.2
percent for the fourth quarter and 24.6 percent for the full year;
these rates exclude a fourth quarter net tax benefit of $48 million
from a discrete foreign structuring transaction, while the full
year rate also excludes a net tax benefit of $179 million
associated with the termination of our U.S. pension plan.
The company’s 2020 adjusted tax rate is expected to be in the
mid-twenty percent range.
Cost Reduction Actions
In the fourth quarter and full year 2019, the company realized
approximately $18 million and $53 million, respectively, in pre-tax
savings from restructuring, net of transition costs, and incurred
pre-tax restructuring charges of approximately $29 million and $50
million, respectively, the vast majority of which represents cash
charges.
Outlook
In its supplemental presentation materials, “Fourth Quarter and
Full Year 2019 Financial Review and Analysis,” the company provides
a list of factors that it believes will contribute to its 2020
financial results. Based on the factors listed and other
assumptions, the company expects 2020 reported earnings per share
of $6.75 to $7.00.
Excluding an estimated $0.15 per share related to restructuring
charges and other items, the company expects adjusted earnings per
share of $6.90 to $7.15.
For more details on the company’s results, see the summary
tables accompanying this news release, as well as the supplemental
presentation materials, “Fourth Quarter and Full Year 2019
Financial Review and Analysis,” posted on the company’s website at
www.investors.averydennison.com, and furnished to the SEC on Form
8-K.
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
more than 30,000 employees in more than 50 countries. Reported
sales in 2019 were $7.1 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. We believe that the most significant risk
factors that could affect our financial performance in the
near-term include: (1) the impacts to underlying demand for our
products and/or foreign currency fluctuations from global economic
conditions, political uncertainty, and changes in governmental
regulations; (2) competitors' actions, including pricing, expansion
in key markets, and product offerings; (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; and (4) the execution and integration
of acquisitions.
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 our markets due to competitive conditions, technological
developments, laws and regulations, and 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 U.S. Tax
Cuts and Jobs Act (“TCJA”), and regulations issued hereto, and
uncertainties associated with interpretations of such laws and
regulations; outcome of tax audits; fluctuations in pension,
insurance, and employee benefit costs; 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.
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 2018 Form 10-K, filed
with the Securities and Exchange Commission on February 27, 2019,
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.
Fourth Quarter Financial Summary - Preliminary, unaudited
(In millions, except % and per share amounts)
4Q
4Q
% Sales
Change vs. P/Y
2019
2018
Reported
Ex.
Currency
Organic
(a) (b) Net sales, by segment: Label and Graphic Materials
$
1,176.2
$
1,181.4
(0.4
%)
1.5
%
1.5
%
Retail Branding and Information Solutions
426.9
412.1
3.6
%
5.2
%
5.2
%
Industrial and Healthcare Materials
169.8
175.2
(3.1
%)
(1.1
%)
(1.1
%)
Total net sales
$
1,772.9
$
1,768.7
0.2
%
2.1
%
2.1
%
As Reported (GAAP)
Adjusted Non-GAAP (c)
4Q
4Q
%
% of Sales
4Q
4Q
%
% of Sales
2019
2018
Change
2019
2018
2019
2018
Change
2019
2018
Operating income (loss) / operating margins before interest, other
non-operating expense, and taxes, by segment: Label and Graphic
Materials
$
140.9
$
150.1
12.0
%
12.7
%
$
156.0
$
152.0
13.3
%
12.9
%
Retail Branding and Information Solutions
49.1
48.0
11.5
%
11.6
%
58.1
50.3
13.6
%
12.2
%
Industrial and Healthcare Materials
12.2
18.0
7.2
%
10.3
%
17.4
16.8
10.2
%
9.6
%
Corporate expense
(22.1
)
(22.1
)
(19.9
)
(22.1
)
Total operating income / operating margins before interest, other
non-operating expense, and taxes
$
180.1
$
194.0
(7
%)
10.2
%
11.0
%
$
211.6
$
197.0
7
%
11.9
%
11.1
%
Interest expense
$
17.8
$
16.3
$
17.8
$
16.3
Other non-operating expense, net (d)
($
3.0
)
$
89.9
($
0.2
)
$
3.6
Income before taxes
$
165.3
$
87.8
88
%
9.3
%
5.0
%
$
194.0
$
177.1
10
%
10.9
%
10.0
%
Provision for (benefit from) income taxes
$
2.2
($
9.5
)
$
46.9
$
44.3
Equity method investment losses
($
0.6
)
($
0.2
)
($
0.6
)
($
0.2
)
Net income
$
162.5
$
97.1
67
%
9.2
%
5.5
%
$
146.5
$
132.6
10
%
8.3
%
7.5
%
Net income per common share, assuming dilution
$
1.92
$
1.11
73
%
$
1.73
$
1.52
14
%
Free Cash Flow (e)
$
184.9
$
168.7
See accompanying schedules A-4 to A-8 for reconciliations
from GAAP to non-GAAP financial measures. (a) Sales change
ex. currency refers to the increase or decrease in net sales,
excluding the estimated impact of foreign currency translation,
and, where applicable, currency adjustment for transitional
reporting of highly inflationary economies (Argentina). Segment
results are also adjusted for the reclassification of sales between
segments. 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. (b) Organic sales change
refers to sales change ex. currency, excluding the estimated impact
of 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) As
reported "Other non-operating expense, net" for the fourth quarter
of 2019 and 2018 includes ($2.8) and $86.3, respectively, of
pension plan (credits), net of settlement charges. (e) Free
cash flow refers to cash flow provided by operating activities,
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 insurance and sales
(purchases) of investments. Free cash flow is also adjusted for the
cash contributions related to the termination of our U.S. pension
plan.
Full Year Financial Summary - Preliminary, unaudited
(in millions, except % and per share amounts)
% Sales
Change vs. P/Y
2019
2018
Reported
Ex.
Currency
Organic
(a)
(b)
Net sales, by segment: Label and Graphic Materials
$
4,745.9
$
4,851.1
(2.2
%)
1.2
%
1.2
%
Retail Branding and Information Solutions
1,650.3
1,613.2
2.3
%
5.1
%
5.1
%
Industrial and Healthcare Materials
673.9
694.7
(3.0
%)
0.4
%
0.4
%
Total net sales
$
7,070.1
$
7,159.0
(1.2
%)
2.0
%
2.0
%
As Reported (GAAP)
Adjusted Non-GAAP (c)
%
% of Sales
%
% of Sales
2019
2018
Change
2019
2018
2019
2018
Change
2019
2018
Operating income (loss) / operating margins before interest, other
non-operating expense, and taxes, by segment: Label and Graphic
Materials
$
601.5
$
568.2
12.7
%
11.7
%
$
629.8
$
630.0
13.3
%
13.0
%
Retail Branding and Information Solutions
196.6
170.4
11.9
%
10.6
%
206.5
181.8
12.5
%
11.3
%
Industrial and Healthcare Materials
60.0
62.9
8.9
%
9.1
%
69.4
61.9
10.3
%
8.9
%
Corporate expense
(87.6
)
(83.4
)
(82.0
)
(85.7
)
Total operating income / operating margins before interest, other
non-operating expense, and taxes
$
770.5
$
718.1
7
%
10.9
%
10.0
%
$
823.7
$
788.0
5
%
11.7
%
11.0
%
Interest expense
$
75.8
$
58.5
$
75.8
$
58.5
Other non-operating expense, net (d)
$
445.2
$
104.8
$
1.1
$
11.1
Income before taxes
$
249.5
$
554.8
(55
%)
3.5
%
7.7
%
$
746.8
$
718.4
4
%
10.6
%
10.0
%
(Benefit from) provision for income taxes (e)
($
56.7
)
$
85.4
$
183.4
$
179.6
Equity method investment losses
($
2.6
)
($
2.0
)
($
2.6
)
($
2.0
)
Net income
$
303.6
$
467.4
(35
%)
4.3
%
6.5
%
$
560.8
$
536.8
4
%
7.9
%
7.5
%
Net income per common share, assuming dilution
$
3.57
$
5.28
(32
%)
$
6.60
$
6.06
9
%
Free Cash Flow (f)
$
512.3
$
429.2
See accompanying schedules A-4 to A-8 for reconciliations
from GAAP to non-GAAP financial measures. (a) Sales change
ex. currency refers to the increase or decrease in net sales,
excluding the estimated impact of foreign currency translation,
and, where applicable, currency adjustment for transitional
reporting of highly inflationary economies (Argentina). Segment
results are also adjusted for the reclassification of sales between
segments. 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. (b) Organic sales change
refers to sales change ex. currency, excluding the estimated impact
of 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) As
reported "Other non-operating expense, net" for 2019 and 2018
includes $444.1 and $93.7, respectively, of pension plan
settlements and related charges. (e) As reported "(Benefit
from) provision for income taxes" for 2019 includes tax benefit of
$178.9 related to the termination of our U.S. pension plan.
(f) Free cash flow refers to cash flow provided by operating
activities, 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
insurance and sales (purchases) of investments. Free cash flow is
also adjusted for the cash contributions related to the 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
Twelve Months Ended
Dec. 28, 2019
Dec. 29, 2018
Dec. 28, 2019
Dec. 29, 2018
Net sales
$
1,772.9
$
1,768.7
$
7,070.1
$
7,159.0
Cost of products sold
1,288.2
1,297.2
5,166.0
5,243.5
Gross profit
484.7
471.5
1,904.1
1,915.5
Marketing, general and administrative expense
273.1
274.5
1,080.4
1,127.5
Other expense, net(1)
31.5
3.0
53.2
69.9
Interest expense
17.8
16.3
75.8
58.5
Other non-operating expense, net(2)
(3.0
)
89.9
445.2
104.8
Income before taxes
165.3
87.8
249.5
554.8
Provision for (benefit from) income taxes(3)
2.2
(9.5
)
(56.7
)
85.4
Equity method investment losses
(0.6
)
(0.2
)
(2.6
)
(2.0
)
Net income
$
162.5
$
97.1
$
303.6
$
467.4
Per share amounts:
Net income per common share, assuming dilution
$
1.92
$
1.11
$
3.57
$
5.28
Weighted average number of common shares outstanding,
assuming dilution
84.5
87.2
85.0
88.6
(1)
"Other expense, net" for the fourth quarter of 2019 includes
severance and related costs of $25.5, asset impairment charges of
$3.4, and transaction costs of $2.6. "Other expense, net" for the
fourth quarter of 2018 includes severance and related costs of $7
and asset impairment charges of $1, partially offset by reversal of
acquisition-related contingent consideration of $5. "Other expense,
net" for fiscal year 2019 includes severance and related costs of
$45.3, asset impairment and lease cancellation charges of $5.1,
legal settlement of $3.4, and transaction costs of $2.6, partially
offset by gain on sales of assets of $3.2. "Other expense, net" for
fiscal year 2018 includes severance and related costs of $63, asset
impairment and lease cancellation charges of $10.7, Argentine peso
remeasurement transition loss of $3.4, and other
restructuring-related charge of $.5, partially offset by reversal
of acquisition-related contingent consideration of $5 and net gain
on sales of assets of $2.7.
(2)
"Other non-operating expense, net" includes pension plan (credits),
net of settlements and related charges of ($2.8) and $86.3 for the
fourth quarter of 2019 and 2018, respectively, and $444.1 and $93.7
for the fiscal year 2019 and 2018, respectively.
(3)
"Provision for (benefit from) income taxes" for fiscal year 2019
includes tax benefit of $178.9 related to the termination of our
U.S. pension plan.
A-2
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED BALANCE SHEETS (In millions)
(UNAUDITED)
ASSETS
Dec. 28, 2019
Dec. 29, 2018
Current assets: Cash and cash equivalents
$
253.7
$
232.0
Trade accounts receivable, net
1,212.2
1,189.7
Inventories, net
663.0
651.4
Other current assets
211.7
224.9
Total current assets
2,340.6
2,298.0
Property, plant and equipment, net
1,210.7
1,137.4
Goodwill and other intangibles resulting from business
acquisitions, net
1,057.3
1,085.8
Non-current deferred income taxes
225.4
205.3
Other assets
654.8
451.0
$
5,488.8
$
5,177.5
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt and
finance leases
$
440.2
$
194.6
Accounts payable
1,066.1
1,030.5
Other current liabilities
747.5
768.9
Total current liabilities
2,253.8
1,994.0
Long-term debt and finance leases
1,499.3
1,771.6
Other long-term liabilities
531.7
456.8
Shareholders' equity:
Common stock
124.1
124.1
Capital in excess of par value
874.0
872.0
Retained earnings
2,979.1
2,864.9
Treasury stock at cost
(2,425.1
)
(2,223.9
)
Accumulated other comprehensive loss
(348.1
)
(682.0
)
Total shareholders' equity
1,204.0
955.1
$
5,488.8
$
5,177.5
In the first quarter of 2019, we adopted Accounting Standards
Codification ("ASU") No. 2016-02, Leases. This ASU requires lessees
to recognize on their balance sheets the rights and obligations
created by leases. As allowed under this ASU, we elected to apply
it using a modified retrospective approach. This approach applies
to all leases that existed at or commenced after the date of our
initial application. As such, prior year comparative periods have
not been adjusted.
A-3
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
(UNAUDITED) Twelve Months Ended
Dec. 28, 2019 Dec. 29, 2018
Operating Activities: Net income
$
303.6
$
467.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
140.3
141.5
Amortization
38.7
39.5
Provision for doubtful accounts and sales returns
58.7
45.6
Stock-based compensation
34.5
34.3
Pension plan settlements and related charges
444.1
93.7
Deferred income taxes and other non-cash taxes
(216.9
)
(32.7
)
Other non-cash expense and loss (income and gain), net
28.3
60.4
Changes in assets and liabilities and other adjustments
(84.8
)
(391.8
)
Net cash provided by operating activities
746.5
457.9
Investing Activities:
Purchases of property, plant and equipment
(219.4
)
(226.7
)
Purchases of software and other deferred charges
(37.8
)
(29.9
)
Proceeds from sales of property, plant and equipment
7.8
9.4
Proceeds from insurance and sales (purchases) of investments, net
4.9
18.5
Payments for investments in businesses
(6.5
)
(3.8
)
Net cash used in investing activities
(251.0
)
(232.5
)
Financing Activities:
Net decrease in borrowings (maturities of three months or less)
(5.3
)
(77.6
)
Additional long-term borrowings
---
493.3
Repayments of long-term debt and finance leases
(18.6
)
(6.4
)
Dividends paid
(189.7
)
(175.0
)
Share repurchases
(237.7
)
(392.9
)
Net (tax withholding) proceeds related to stock-based compensation
(17.4
)
(32.2
)
Payments of contingent consideration
(1.6
)
(17.3
)
Net cash used in financing activities
(470.3
)
(208.1
)
Effect of foreign currency translation on cash balances
(3.5
)
(9.7
)
Increase in cash and cash equivalents
21.7
7.6
Cash and cash equivalents, beginning of year
232.0
224.4
Cash and cash equivalents, end of year
$
253.7
$
232.0
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 the 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 or losses from curtailment or 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
net sales, excluding the estimated impact of foreign currency
translation, and, where applicable, currency adjustment for
transitional reporting of highly inflationary economies
(Argentina). Segment results are also adjusted for the
reclassification of sales between segments. 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 sales change ex. currency,
excluding the estimated impact of 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 change from the
ongoing activities of our businesses and enhance their 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 net sales.
Adjusted tax rate refers to the full-year GAAP tax rate,
adjusted to exclude certain unusual or infrequent events that are
expected to significantly impact that rate, such as impacts related
to the enactment of the U.S. Tax Cuts and Jobs Act (TCJA) and our
U.S. pension plan termination, effects of certain discrete tax
planning actions, and other items.
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 provided by operating
activities, 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
insurance and sales (purchases) of investments. Free cash flow is
also adjusted for the cash contributions related to the 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
Twelve Months Ended
Dec. 28, 2019
Dec. 29, 2018
Dec. 28, 2019
Dec. 29, 2018
Reconciliation from GAAP to Non-GAAP operating
margins: Net sales
$
1,772.9
$
1,768.7
$
7,070.1
$
7,159.0
Income before taxes
$
165.3
$
87.8
$
249.5
$
554.8
Income before taxes as a percentage of net sales
9.3
%
5.0
%
3.5
%
7.7
%
Adjustments:
Interest expense
$
17.8
$
16.3
$
75.8
$
58.5
Other non-operating expense, net
(3.0
)
89.9
445.2
104.8
Operating income before interest expense, other non-operating
expense, and taxes
$
180.1
$
194.0
$
770.5
$
718.1
Operating margins
10.2
%
11.0
%
10.9
%
10.0
%
Income before taxes
$
165.3
$
87.8
$
249.5
$
554.8
Adjustments:
Restructuring charges:
Severance and related costs
25.5
7.0
45.3
63.0
Asset impairment and lease cancellation charges
3.4
1.0
5.1
10.7
Transaction costs
2.6
---
2.6
---
Legal settlement
---
---
3.4
---
Argentine peso remeasurement transition loss
---
---
---
3.4
Other restructuring-related charge
---
---
---
0.5
Reversal of acquisition-related contingent consideration
---
(5.0
)
---
(5.0
)
Net gain on sales of assets
---
---
(3.2
)
(2.7
)
Interest expense
17.8
16.3
75.8
58.5
Other non-operating expense, net
(3.0
)
89.9
445.2
104.8
Adjusted operating income before interest expense, other
non-operating expense,
and taxes (non-GAAP)
$
211.6
$
197.0
$
823.7
$
788.0
Adjusted operating margins (non-GAAP)
11.9
%
11.1
%
11.7
%
11.0
%
Reconciliation from GAAP to Non-GAAP net income:
As reported net income
$
162.5
$
97.1
$
303.6
$
467.4
Adjustments:
Restructuring charges and other items(1)
31.5
3.0
53.2
69.9
Pension plan settlements and related charges
(2.8
)
86.3
444.1
93.7
Tax benefit from pension plan settlements and related charges(2)
0.8
(19.3
)
(179.0
)
(19.3
)
Tax benefit from pension plan contributions(3)(4)
---
---
---
(31.0
)
Tax benefit from discrete foreign tax structuring and planning
transactions
(47.9
)
(31.0
)
(47.9
)
(31.0
)
Tax effect on restructuring charges and other items and impact of
adjusted tax rate
2.4
0.2
(13.2
)
(9.2
)
Adjustments to TCJA provisional amounts(2)(4)
---
(3.7
)
---
(3.7
)
Adjusted net income (non-GAAP)
$
146.5
$
132.6
$
560.8
$
536.8
(1)
Includes restructuring and related charges, transaction costs,
legal settlement, Argentine peso remeasurement transition loss,
other restructuring-related charge, reversal of acquisition-related
contingent consideration, and net gain on sales of assets.
(2)
Amounts in the fourth quarter of 2018 include the combined third
and fourth quarter impacts of ($1.2) and ($18.1) for tax benefits
from pension plan settlements, and ($4.7) and $1 for adjustments to
TCJA provisional amounts.
(3)
Tax benefits from the deduction of the third quarter 2018 pension
contribution on our 2017 U.S. income tax return.
(4)
In the fourth quarter of 2018, we finalized our provisional amounts
as defined under SEC Staff Accounting Bulletin No. 118 related to
the TCJA.
A-5 (continued)
PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL
MEASURES (In millions, except % and per share amounts)
(UNAUDITED)
Three Months Ended
Twelve Months Ended
Dec. 28, 2019
Dec. 29, 2018
Dec. 28, 2019
Dec. 29, 2018
Reconciliation from GAAP to Non-GAAP net income per
common share: As reported net income per common share, assuming
dilution
$
1.92
$
1.11
$
3.57
$
5.28
Adjustments per common share, net of tax:
Restructuring charges and other items(1)
0.37
0.04
0.63
0.78
Pension plan settlements and related charges
(0.02
)
0.77
3.12
0.84
Tax benefit from discrete foreign tax structuring and planning
transactions
(0.57
)
(0.36
)
(0.56
)
(0.35
)
Adjustments to TCJA provisional amounts(2)
---
(0.04
)
---
(0.39
)
Tax effect on restructuring charges and other items and impact of
adjusted tax rate
0.03
---
(0.16
)
(0.10
)
Adjusted net income per common share, assuming dilution (non-GAAP)
$
1.73
$
1.52
$
6.60
$
6.06
Weighted average number of common shares outstanding, assuming
dilution
84.5
87.2
85.0
88.6
The adjusted tax rate was 24.2% and 24.6% for the three and
twelve months ended Dec. 28, 2019, respectively, and 25% for the
three and twelve months ended Dec. 29, 2018.
(1)
Includes pretax restructuring and related charges, transaction
costs, legal settlement, Argentine peso remeasurement transition
loss, other restructuring-related charge, reversal of
acquisition-related contingent consideration, and net gain on sales
of assets.
(2)
In the fourth quarter of 2018, we finalized our provisional amounts
as defined under SEC Staff Accounting Bulletin No. 118 related to
the TCJA.
(UNAUDITED)
Three Months Ended
Twelve Months Ended
Dec. 28, 2019
Dec. 29, 2018
Dec. 28, 2019
Dec. 29, 2018
Reconciliation of free cash flow: Net cash
provided by operating activities
$
279.5
$
270.2
$
746.5
$
457.9
Purchases of property, plant and equipment
(86.5
)
(94.0
)
(219.4
)
(226.7
)
Purchases of software and other deferred charges
(10.4
)
(8.4
)
(37.8
)
(29.9
)
Proceeds from sales of property, plant and equipment
0.1
---
7.8
9.4
Proceeds from insurance and sales (purchases) of investments, net
1.4
0.9
4.9
18.5
Pension plan contributions for plan termination
0.8
---
10.3
200.0
Free cash flow (non-GAAP)
$
184.9
$
168.7
$
512.3
$
429.2
A-6
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Fourth Quarter Ended
NET SALES
OPERATING INCOME (LOSS)
OPERATING MARGINS
2019
2018
2019 (1)
2018 (2)
2019
2018
Label and Graphic Materials
$
1,176.2
$
1,181.4
$
140.9
$
150.1
12.0
%
12.7
%
Retail Branding and Information Solutions
426.9
412.1
49.1
48.0
11.5
%
11.6
%
Industrial and Healthcare Materials
169.8
175.2
12.2
18.0
7.2
%
10.3
%
Corporate Expense
N/A
N/A
(22.1
)
(22.1
)
N/A
N/A
TOTAL FROM OPERATIONS
$
1,772.9
$
1,768.7
$
180.1
$
194.0
10.2
%
11.0
%
(1)
Operating income for the fourth quarter of 2019 includes severance
and related costs of $25.5, asset impairment charges of $3.4, and
transaction costs of $2.6. Of the total $31.5, the Label and
Graphic Materials segment recorded $15.1, the Retail Branding and
Information Solutions segment recorded $9, the Industrial and
Healthcare Materials segment recorded $5.2, and Corporate recorded
$2.2.
(2)
Operating income for the fourth quarter of 2018 includes severance
and related costs of $7 and asset impairment charges of $1,
partially offset by reversal of acquisition-related contingent
consideration of $5. Of the total $3, the Label and Graphic
Materials segment recorded $1.9, the Retail Branding and
Information Solutions segment recorded $2.3, and the Industrial and
Healthcare Materials segment recorded ($1.2).
RECONCILIATION
FROM GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
Fourth Quarter Ended OPERATING INCOME OPERATING MARGINS
2019
2018
2019
2018
Label and Graphic Materials
Operating income and margins, as reported
$
140.9
$
150.1
12.0
%
12.7
%
Adjustments: Restructuring charges: Severance and related costs
15.1
1.6
1.3
%
0.2
%
Asset impairment charges
---
0.3
---
---
Adjusted operating income and margins (non-GAAP)
$
156.0
$
152.0
13.3
%
12.9
%
Retail Branding and Information
Solutions Operating income and margins, as reported
$
49.1
$
48.0
11.5
%
11.6
%
Adjustments: Restructuring charges: Severance and related costs
6.3
1.7
1.5
%
0.4
%
Asset impairment charges
0.1
0.6
---
0.2
%
Transaction costs
2.6
---
0.6
%
---
Adjusted operating income and margins (non-GAAP)
$
58.1
$
50.3
13.6
%
12.2
%
Industrial and Healthcare
Materials Operating income and margins, as reported
$
12.2
$
18.0
7.2
%
10.3
%
Adjustments: Restructuring charges: Severance and related costs
1.9
3.7
1.1
%
2.1
%
Asset impairment charges
3.3
0.1
1.9
%
0.1
%
Reversal of acquisition-related contingent consideration
---
(5.0
)
---
(2.9
%)
Adjusted operating income and margins (non-GAAP)
$
17.4
$
16.8
10.2
%
9.6
%
A-7
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Twelve Months
Year-to-Date
NET SALES
OPERATING INCOME (LOSS)
OPERATING MARGINS
2019
2018
2019(1)
2018(2)
2019
2018
Label and Graphic Materials
$
4,745.9
$
4,851.1
$
601.5
$
568.2
12.7
%
11.7
%
Retail Branding and Information Solutions
1,650.3
1,613.2
196.6
170.4
11.9
%
10.6
%
Industrial and Healthcare Materials
673.9
694.7
60.0
62.9
8.9
%
9.1
%
Corporate Expense
N/A
N/A
(87.6
)
(83.4
)
N/A
N/A
TOTAL FROM OPERATIONS
$
7,070.1
$
7,159.0
$
770.5
$
718.1
10.9
%
10.0
%
(1)
Operating income for fiscal year 2019 includes severance and
related costs of $45.3, asset impairment and lease cancellation
charges of $5.1, legal settlement of $3.4, and transaction costs of
$2.6, partially offset by gain on sales of assets of $3.2. Of the
total $53.2, the Label and Graphic Materials segment recorded
$28.3, the Retail Branding and Information Solutions segment
recorded $9.9, the Industrial and Healthcare Materials segment
recorded $9.4, and Corporate recorded $5.6.
(2)
Operating income for fiscal year 2018 includes severance and
related costs of $63, asset impairment and lease cancellation
charges of $10.7, Argentine peso remeasurement transition loss of
$3.4, and other restructuring-related charge of $.5, partially
offset by reversal of acquisition-related contingent consideration
of $5 and net gain on sales of assets of $2.7. Of the total $69.9,
the Label and Graphic Materials segment recorded $61.8, the Retail
Branding and Information Solutions segment recorded $11.4, the
Industrial and Healthcare Materials segment recorded ($1), and
Corporate recorded ($2.3).
RECONCILIATION FROM GAAP TO NON-GAAP
SUPPLEMENTARY INFORMATION
Twelve Months
Year-to-Date
OPERATING INCOME
OPERATING MARGINS
2019
2018
2019
2018
Label and Graphic Materials
Operating income and margins, as reported
$
601.5
$
568.2
12.7
%
11.7
%
Adjustments: Restructuring charges: Severance and related costs
27.7
50.3
0.6
%
1.0
%
Asset impairment and lease cancellation charges
1.3
7.5
---
0.2
%
Argentine peso remeasurement transition loss
---
3.4
---
0.1
%
Other restructuring-related charge
---
0.5
---
---
(Gain) loss on sales of assets
(0.7
)
0.1
---
---
Adjusted operating income and margins (non-GAAP)
$
629.8
$
630.0
13.3
%
13.0
%
Retail Branding and Information
Solutions Operating income and margins, as reported
$
196.6
$
170.4
11.9
%
10.6
%
Adjustments: Restructuring charges: Severance and related costs
9.3
8.8
0.6
%
0.5
%
Asset impairment and lease cancellation charges
0.5
3.1
---
0.2
%
Gain on sales of assets
(2.5
)
(0.5
)
(0.2
%)
---
Transaction costs
2.6
---
0.2
%
---
Adjusted operating income and margins (non-GAAP)
$
206.5
$
181.8
12.5
%
11.3
%
Industrial and Healthcare
Materials Operating income and margins, as reported
$
60.0
$
62.9
8.9
%
9.1
%
Adjustments: Restructuring charges: Severance and related costs
6.1
3.9
0.9
%
0.5
%
Asset impairment charges
3.3
0.1
0.5
%
---
Reversal of acquisition-related contingent consideration
---
(5.0
)
---
(0.7
%)
Adjusted operating income and margins (non-GAAP)
$
69.4
$
61.9
10.3
%
8.9
%
A-8
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (UNAUDITED) Fourth Quarter
2019
Total Company
Label and Graphic Materials
Retail Branding and Information
Solutions
Industrial and Healthcare
Materials
Reconciliation from GAAP to Non-GAAP sales change Reported
net sales change
0.2
%
(0.4
%)
3.6
%
(3.1
%)
Reclassification of sales between segments
---
(0.2
%)
0.6
%
---
Foreign currency translation
1.9
%
2.1
%
1.0
%
2.0
%
Sales change ex. currency (non-GAAP)(1)
2.1
%
1.5
%
5.2
%
(1.1
%)
Acquisitions
---
---
---
---
Organic sales change (non-GAAP)
2.1
%
1.5
%
5.2
%
(1.1
%)
Full Year 2019
Total Company
Label and Graphic Materials
Retail Branding and Information
Solutions
Industrial and
Healthcare Materials
Reconciliation from GAAP to Non-GAAP sales change Reported
net sales change
(1.2
%)
(2.2
%)
2.3
%
(3.0
%)
Reclassification of sales between segments
---
(0.2
%)
0.6
%
---
Foreign currency translation
3.3
%
3.6
%
2.2
%
3.4
%
Sales change ex. currency (non-GAAP)(1)
2.0
%
1.2
%
5.1
%
0.4
%
Acquisitions
---
---
---
---
Organic sales change (non-GAAP)
2.0
%
1.2
%
5.1
%
0.4
%
(1)
Totals may not sum due to rounding
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200129005256/en/
Media Relations: Rob Six (626) 304-2361
rob.six@averydennison.com
Investor Relations: Cindy Guenther (626) 304-2204
cynthia.guenther@averydennison.com
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