Avery Dennison Stays at Outperform - Analyst Blog
June 28 2013 - 3:00PM
Zacks
On Jun 27, we maintained our
Outperform recommendation on Avery Dennison
Corporation (AVY), a pressure-sensitive materials producer
and provider of wide variety of information and brand management
solutions. The reiteration was based on expected benefits from
restructuring initiatives and divestiture of its underperforming
Office and Consumer Products unit.
Why Reiterated?
Avery’s adjusted earnings increased 37% year over year to 59 cents
per share in first-quarter 2013 and revenues rose 4% year over year
to $1.5 billion. For 2013, Avery expects adjusted earnings in
the range of $2.40 to $2.75 per share. Free cash flow from
continuing operations is expected between $275 million and $315
million in 2013.
In order to attain its financial targets of double-digit earnings
growth and higher returns, Avery has aggressively implemented a
restructuring program to reduce costs across all business segments.
The program is anticipated to be completed by mid-2013. Avery
expects to save more than $100 million annually by leveraging this
program by mid-2013.
Avery’s Office and Consumer Products segment has been struggling
for a long time due to weak end-market demand and cut-throat
competition in the label category. In Jan 2013, Avery agreed to
divest the segment along with its Designed and Engineered Solutions
businesses to CCL Industries Inc., a global leader in specialty
packaging solutions.
The net sale proceeds of approximately $400 million will be
utilized to repurchase shares and make an additional pension
contribution. With the divestiture of the weaker Office Products
business, Avery will be able to focus on its market-leading,
pressure-sensitive materials business and Retail Branding and
Information Solutions segment.
Avery remains committed to its long-term targets (by 2015) of sales
growth in the range of 3% to 5% and net income growth of 10-15%.
Earnings per share growth of 15-20% is expected to be achieved
through continued growth in emerging markets and productivity
improvements.
In addition, the company expects to generate free cash flow of
around $1.2 billion - $1.4 billion over the 2012-2015 timeframe or
$1.6 billion -$1.8 billion (including $400 million from the
abovementioned sale). This will be utilized toward - $150-300
million in debt repayment, more than $200 million for acquisitions
and $1-1.5 billion will be returned to shareholders over the period
in combined share buyback and dividends.
Other Stocks to Consider
Other stocks in the same industry with favorable Zacks rank are
CompX International Inc. (CIX), Energizer
Holdings Inc. (ENR) and Bemis Company,
Inc. (BMS), all carrying a Zacks Rank #2 (Buy).
AVERY DENNISON (AVY): Free Stock Analysis Report
BEMIS (BMS): Free Stock Analysis Report
COMPX INTL INC (CIX): Free Stock Analysis Report
ENERGIZER HLDGS (ENR): Free Stock Analysis Report
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