Avery Divests OCP and DES Businesses - Analyst Blog
July 02 2013 - 6:36PM
Zacks
Avery Dennison Corporation (AVY) divested both
its Office and Consumer Products (OCP) and Designed and Engineered
Solutions (DES) businesses to CCL Industries Inc., a global leader
in specialty packaging solutions, for $500 million.
The transaction is subject to customary closing adjustments, but it
is expected to be finalized in the third quarter. The net sale
proceeds of approximately $400 million will be utilized to
repurchase shares and contribute toward an additional pension
plan.
Avery’s Office and Consumer Products segment has been struggling
for a long time. The business was affected by weak end-market
demand and increased competition. Increased investment in demand
creation, consumer promotions and innovation, as well as lower
volume hampered margins. In Dec 2011, Avery had first entered into
an agreement to sell the segment for approximately $550 million to
3M Co. (MMM).
However, the deal was scrapped in October last year and Avery
continued to search for a prospective buyer for the business. In
Jan 2013, Avery agreed to divest the segment along with its
Designed and Engineered Solutions businesses to CCL Industries
Inc.
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.
In order to attain its financial targets of double-digit earnings
growth and higher returns, Avery aggressively implemented a
restructuring program in the second quarter of 2012 to reduce cost
across all the 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 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.
Avery currently retains a Zacks Rank #2 (Strong Buy). Other stocks
in the same industry with favorable Zacks rank are CompX
International Inc. (CIX) and Herman Miller
Inc. (MLHR), both carrying a Zacks Rank #2 (Buy).
AVERY DENNISON (AVY): Free Stock Analysis Report
COMPX INTL INC (CIX): Free Stock Analysis Report
HERMAN MILLER (MLHR): Free Stock Analysis Report
3M CO (MMM): Free Stock Analysis Report
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