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Avery Dennison Announces Third Quarter 2021 Results

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Highlights:

  • 3Q21 Reported EPS of $1.96, up 9%

    • Adjusted EPS (non-GAAP) of $2.14, up 12%

  • 3Q21 Net sales increased 19.8% to $2.07 billion

    • Sales growth ex. currency (non-GAAP) of 17.0%

    • Organic sales growth (non-GAAP) of 13.9%

  • FY 2021 EPS guidance ranges revised

    • Reported EPS range now $8.55 to $8.70 (previously $8.50 to $8.80)

    • Adjusted EPS range raised to $8.80 to $8.95 (previously $8.65 to $8.95)

GLENDALE, Calif., October 27, 2021--(BUSINESS WIRE)--Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its third quarter ended October 2, 2021. 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 delivered another strong quarter," said Mitch Butier, chairman, president and CEO. "Both LGM and RBIS delivered impressive top and bottom-line growth, with continued momentum in Intelligent Labels. This strong performance comes during a challenging period given the ongoing global health crisis, as supply chains remain tight and significant inflationary pressures continue to build.

"Given our performance in the third quarter, we raised our outlook for the full year as we continue to deliver significant earnings growth," added Butier. "We are also pleased that the acquisition of Vestcom, a business that further expands our position in high value categories in RBIS and has the potential to further advance our Intelligent Labels strategy, closed in the quarter.

"Once again, I want to thank our entire team for their tireless efforts to keep one another safe while delivering for all our stakeholders."

Operational/Market Update

In the third quarter, uncertainty surrounding the global health crisis remained elevated as parts of the world experienced a surge in COVID-19 cases, particularly in South Asia. As the pandemic evolves, the company has continued to adapt its world-class safety protocols. The safety and well-being of employees remains the company’s top priority. The greatest impact of the increase in COVID-19 cases to the company was in Vietnam, particularly in RBIS, which was significantly constrained for the majority of the quarter. While certain manufacturing sites were operating well below full capacity, the company leveraged its global scale to minimize disruptions to customers. All manufacturing locations are now largely operational.

The company continues to actively manage through a dynamic supply and demand environment. Demand across the majority of businesses and regions remains very strong, while raw materials, freight and labor availability continue to be constrained. The company continues to leverage its global scale and work closely with customers and suppliers to minimize disruptions. Inflation remains persistent and additional pricing and material re-engineering actions are being implemented to offset higher costs.

Third Quarter 2021 Results by Segment

Label and Graphic Materials

  • Reported sales increased 18% to $1.3 billion. Compared to prior year, sales were up 15% ex. currency (12% vs. 2019) and 14% on an organic basis (11% vs. 2019).

    • Label and Packaging Materials sales were up approximately 15% from prior year on an organic basis, with strong growth in both the high value product categories and the base business.

    • Sales increased by approximately 11% organically in the combined Graphics and Reflective Solutions businesses.

    • On an organic basis, sales were up low-double digits in North America and emerging markets and more than 20% in Western Europe.

  • Reported operating margin decreased 140 basis points to 13.7%. Adjusted operating margin decreased 140 basis points to 13.8%, driven by the benefit of higher volume/mix, net of supply chain disruptions, which was more than offset by the net impact of pricing and raw material costs and higher employee-related costs.

Retail Branding and Information Solutions

  • Reported sales increased 25% to $531 million. Compared to prior year, sales were up 22% ex. currency (29% vs. 2019) and 14% on an organic basis (9% vs. 2019), reflecting strong growth in both the high value product categories and the base business.

    • Intelligent Labels was up approximately 15% organically (40% vs. 2019).

  • Reported operating margin was flat to prior year at 11.0%. Adjusted operating margin increased 170 basis points to 13.8% as the benefits from higher volume and productivity were partially offset by the headwind from prior year temporary cost reduction actions, higher employee-related costs and growth investments.

  • The Vestcom acquisition closed on August 31, 2021. Vestcom expands RBIS’ role managing variable data in adjacent markets and accelerates the portfolio shift to high value product categories. The Vestcom business has above average sales growth and margins; we expect modest EPS accretion from the acquisition in fiscal year 2021.

Industrial and Healthcare Materials

  • Reported sales increased 24% to $195 million. Compared to prior year, sales were up 20% ex. currency (11% vs. 2019) and 15% on an organic basis (6% vs. 2019), reflecting a high-teens increase in industrial categories and a high-single digit increase in healthcare categories.

  • Reported operating margin increased 170 basis points to 9.6%. Adjusted operating margin decreased 220 basis points to 9.9% as the benefit from higher volume/mix net of supply chain disruptions was more than offset by the net impact of pricing, freight and raw material costs and higher employee-related costs.

Other

Financing, Balance Sheet and Capital Deployment

In August, the company issued $300 million of 0.850% Senior Notes due 2024 and $500 million of 2.250% Senior Notes due 2032. The company used the net proceeds from these offerings, together with cash on hand and commercial paper issuances, to finance the previously announced Vestcom acquisition that closed on August 31, 2021.

During the first three quarters of the year, the company deployed $1.5 billion for acquisitions and returned $290 million in cash to shareholders through a combination of share repurchases and dividends, up from $197 million for the same period last year. The company repurchased 0.7 million shares at an aggregate cost of $126 million. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down by 0.3 million compared to the same time last year.

The company’s balance sheet remains strong, with ample capacity to continue executing our long term capital allocation strategy. Net debt to adjusted EBITDA (non-GAAP) was 2.3 at the end of the third quarter, at the lower end of the company’s long-term target range.

Income Taxes

The company’s third quarter effective tax rate was 26.4%. The adjusted (non-GAAP) tax rate for the quarter was 25.3%, which is also the company’s current expectation for its full year adjusted tax rate.

Cost Reduction Actions

In the third quarter, the company realized approximately $11 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $2 million.

Outlook

In its supplemental presentation materials, "Third Quarter 2021 Financial Review and Analysis," the company provides a list of factors that it believes will contribute to its 2021 financial results. Based on the factors listed and other assumptions, the company has revised its guidance range for 2021 reported earnings per share from $8.50 to $8.80 to $8.55 to $8.70. Excluding an estimated $0.25 per share related to restructuring charges and other items, the company’s guidance range for adjusted earnings per share has been raised from $8.65 to $8.95 to $8.80 to $8.95.

For more details on the company’s results, see the summary tables accompanying this news release, as well as the supplemental presentation materials, "Third Quarter 2021 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 Corporation (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 employed more than 32,000 employees in more than 50 countries in 2020. Reported sales in 2020 were $7.0 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. Forward-looking statements also include those related to the acquisition of Vestcom, including its anticipated benefits, financing and effect on our long-term targets and future financial results.

We believe that the most significant risk factors that could affect our financial performance in the near-term include: (i) the impacts to underlying demand for our products and/or foreign currency fluctuations from global economic conditions, political uncertainty, changes in environmental standards and governmental regulations, including as a result of COVID-19; (ii) competitors’ actions, including pricing, expansion in key markets, and product offerings; (iii) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; and (iv) the execution and integration of acquisitions, including the acquisition of Vestcom.

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:

  • COVID-19

  • International Operations – worldwide and local economic and market conditions; changes in political conditions; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets

  • Our Business – changes in our markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; fluctuations in demand affecting sales to customers; execution and integration of acquisitions, including the acquisition of Vestcom; selling prices; fluctuations in the cost and availability of raw materials and energy; the impact of competitive products and pricing; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; and collection of receivables from customers

  • Vestcom acquisition – significant transaction costs or unknown or inestimable liabilities; risks related to future opportunities and plans for the combined company, including the uncertainty of expected future financial performance and results of the combined company; and the possibility that, if we do not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated by financial analysts or investors, the market price of our common stock could decline

  • Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets

  • Information Technology – disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; and data security breaches

  • Human Capital – recruitment and retention of employees; fluctuations in employee benefit costs; and collective labor arrangements

  • Our Indebtedness – credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; volatility of financial markets; fluctuations in interest rates; and compliance with our debt covenants

  • Ownership of Our Stock – potential significant variability of our stock price and amounts of future dividends and share repurchases

  • Legal and Regulatory Matters – protection and infringement of intellectual property and impact of legal and regulatory proceedings, including with respect to environmental, health and safety, anti-corruption and trade compliance

  • Other Financial Matters – fluctuations in pension costs and goodwill impairment

For a more detailed discussion of these factors, see "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K, filed with the Securities and Exchange Commission on February 25, 2021, 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

Third Quarter Financial Summary - Preliminary, unaudited

(In millions, except % and per share amounts)

3Q

3Q

% Sales Change vs. P/Y

2021

2020

Reported

Ex. Currency

Organic

(a)

(b)

Net sales, by segment:

Label and Graphic Materials

$1,345.8

$1,145.4

17.5%

14.6%

14.0%

Retail Branding and Information Solutions

530.7

426.1

24.5%

22.2%

13.5%

Industrial and Healthcare Materials

195.3

157.6

23.9%

20.0%

14.9%

Total net sales

$2,071.8

$1,729.1

19.8%

17.0%

13.9%

As Reported (GAAP)

Adjusted Non-GAAP (c)

3Q

3Q

%

% of Sales

3Q

3Q

%

% of Sales

2021

2020

Change

2021

2020

2021

2020

Change

2021

2020

Operating income (loss) / operating margins

before interest, other non-operating expense (income), and taxes,

by segment:

Label and Graphic Materials

$184.9

$173.1

13.7%

15.1%

$185.1

$174.5

13.8%

15.2%

Retail Branding and Information Solutions

58.5

47.0

11.0%

11.0%

73.1

51.4

13.8%

12.1%

Industrial and Healthcare Materials

18.7

12.5

9.6%

7.9%

19.4

19.1

9.9%

12.1%

Corporate expense (d)

(20.6)

(19.1)

(20.1)

(19.1)

Total operating income / operating margins

before interest, other non-operating expense (income), and taxes

$241.5

$213.5

13%

11.7%

12.3%

$257.5

$225.9

14%

12.4%

13.1%

Interest expense

$18.0

$15.6

$18.0

$15.6

Other non-operating expense (income), net (e)

($0.9)

$0.1

($1.5)

$0.1

Income before taxes

$224.4

$197.8

13%

10.8%

11.4%

$241.0

$210.2

15%

11.6%

12.2%

Provision for (benefit from) income taxes

$59.2

$46.3

$61.0

$48.7

Equity method investment (losses) gains

($1.1)

($1.0)

($1.1)

($1.0)

Net income

$164.1

$150.5

9%

7.9%

8.7%

$178.9

$160.5

11%

8.6%

9.3%

Net income per common share, assuming dilution

$1.96

$1.79

9%

$2.14

$1.91

12%

3Q Free Cash Flow (f)

$251.2

$232.9

YTD Free Cash Flow (f)

$639.2

$341.7

See accompanying schedules A-4 to A-10 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, the calendar shift resulting from the extra week in the prior fiscal year and currency adjustment for transitional reporting of highly inflationary economies. 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 acquisitions and product line divestitures.

(c)

Excludes impact of restructuring charges and other items.

(d)

As reported "Corporate expense" in the third quarter of 2021 includes severance and related costs of $.5.

(e)

As reported "Other non-operating expense (income), net" in the third quarter of 2021 includes pension plan settlement loss of $.6.

(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, where applicable, certain acquisition-related transaction costs.

A-1

AVERY DENNISON CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(UNAUDITED)

Three Months Ended

Nine Months Ended

Oct. 2, 2021

Sep. 26, 2020

Oct. 2, 2021

Sep. 26, 2020

Net sales

$

2,071.8

$

1,729.1

$

6,225.1

$

4,980.6

Cost of products sold

1,517.4

1,244.9

4,497.4

3,628.4

Gross profit

554.4

484.2

1,727.7

1,352.2

Marketing, general and administrative expense

296.9

258.3

916.2

758.7

Other expense (income), net(1)

16.0

12.4

16.3

57.3

Interest expense

18.0

15.6

50.2

54.4

Other non-operating expense (income), net(2)

(0.9

)

0.1

(3.6

)

(0.2

)

Income before taxes

224.4

197.8

748.6

482.0

Provision for (benefit from) income taxes

59.2

46.3

187.7

114.8

Equity method investment (losses) gains

(1.1

)

(1.0

)

(3.5

)

(2.8

)

Net income

$

164.1

$

150.5

$

557.4

$

364.4

Per share amounts:

Net income per common share, assuming dilution

$

1.96

$

1.79

$

6.64

$

4.34

Weighted average number of common shares outstanding,

assuming dilution

83.7

84.0

83.9

84.0

(1)

"Other expense (income), net" for the third quarter of 2021 includes severance and related costs of $1.1, asset impairment charges of $1.3 and transaction and related costs of $19.4, partially offset by gain on investment of $4.9 and gain on sale of product line of $.9.

"Other expense (income), net" for the third quarter of 2020 includes severance and related costs of $6.5, asset impairment charges of $4.4, and loss on investment of $1.5.

"Other expense (income), net" for 2021 YTD includes severance and related costs of $5.1, asset impairment and lease cancellation charges of $1.9, transaction and related costs of $20.1, and loss on sale of assets, net, of $.2, partially offset by gain on sale of product line of $5.7, gain on investment of $4.9, and outcomes of legal proceedings, net, of $.4.

"Other expense (income), net" for 2020 YTD includes severance and related costs of $46.4, asset impairment charges of $6.2, transaction and related costs of $3.2, and loss on investment of $1.5.

(2)

"Other non-operating expense (income), net" for 2021 QTD and YTD includes pension plan settlement loss of $.6 and $1, respectively.

A-2

AVERY DENNISON CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(UNAUDITED)

ASSETS

Oct. 2, 2021

Sep. 26, 2020

Current assets:

Cash and cash equivalents

$

207.2

$

284.7

Trade accounts receivable, net

1,441.2

1,212.7

Inventories, net

879.1

662.6

Other current assets

251.0

214.5

Total current assets

2,778.5

2,374.5

Property, plant and equipment, net

1,405.5

1,233.9

Goodwill and other intangibles resulting from business acquisitions, net

2,828.2

1,253.4

Deferred tax assets

152.7

203.3

Other assets

802.8

655.7

$

7,967.7

$

5,720.8

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Short-term borrowings and current portion of long-term debt and finance leases

$

398.8

$

124.1

Accounts payable

1,268.2

932.8

Other current liabilities

942.4

759.1

Total current liabilities

2,609.4

1,816.0

Long-term debt and finance leases

2,800.2

2,020.0

Other long-term liabilities

758.9

550.2

Shareholders' equity:

Common stock

124.1

124.1

Capital in excess of par value

854.8

850.3

Retained earnings

3,749.7

3,205.5

Treasury stock at cost

(2,606.4

)

(2,451.4

)

Accumulated other comprehensive loss

(323.0

)

(393.9

)

Total shareholders' equity

1,799.2

1,334.6

$

7,967.7

$

5,720.8

A-3

AVERY DENNISON CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(UNAUDITED)

Nine Months Ended

Oct. 2, 2021

Sep. 26, 2020

Operating Activities:

Net income

$

557.4

$

364.4

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

122.9

113.7

Amortization

48.6

36.1

Provision for credit losses and sales returns

26.1

50.4

Stock-based compensation

27.1

12.1

Pension plan settlement loss

1.0

---

Deferred taxes and other non-cash taxes

(1.5

)

17.1

Other non-cash expense and loss (income and gain), net

17.7

35.3

Changes in assets and liabilities and other adjustments

(36.5

)

(187.3

)

Net cash provided by operating activities

762.8

441.8

Investing Activities:

...

Purchases of property, plant and equipment

(130.6

)

(91.7

)

Purchases of software and other deferred charges

(9.8

)

(13.8

)

Proceeds from sales of property, plant and equipment

1.1

0.2

Proceeds from insurance and sales (purchases) of investments, net

1.2

5.2

Proceeds from sale of product line

6.7

---

Payments for acquisitions, net o...

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