Avery Dennison share earnings up 38% for Q3

Highlights:

• 3Q22 Reported EPS of $2.70, up 38%
  • Adjusted EPS (non-GAAP) of $2.46, up 15%
• 3Q22 Net sales increased 11.8% to $2.3 billion
  • Sales growth ex. currency (non-GAAP) of 19.0%
  • Organic sales growth (non-GAAP) of 15.5%
• Narrowed FY 2022 EPS guidance
  • Reported EPS of $9.65 to $9.80 (previously $9.60 to $9.90)
  • Adjusted EPS of $9.70 to $9.85 (previously $9.70 to $10.00)

Avery Dennison announced preliminary, unaudited results for its third quarter ended October 1, 2022. Non-GAAP financial measures referenced in this document are reconciled from GAAP in the attached financial schedules. Unless otherwise indicated, comparisons are to the same period in the prior year.

“We once again delivered strong financial results amidst a dynamic environment,” said Mitch Butier, Avery Dennison chairman and CEO. “LGM and RBIS both delivered impressive top- and bottom-line growth in the quarter, while making great progress in driving further adoption of Intelligent Label solutions.

“The strategic foundations we have laid again position us to deliver double-digit EPS growth for the year, despite ongoing inflationary pressures, currency headwinds and increasing economic uncertainty,” said Butier. “We remain confident that the consistent execution of our strategies will enable us to meet our long-term goals for superior value creation through a balance of profitable growth and capital discipline.

“Once again, I want to thank our entire team for continuing to raise their game to address the unique challenges at hand and deliver value for all our stakeholders.”

Third Quarter 2022 Results by Segment

Label and Graphic Materials

• Reported sales increased 12% to $1.5 billion. Sales were up 20% ex. currency and 20% on an organic basis.
  • Label and Packaging Materials sales were up more than 20% on an organic basis, with strong growth in both high value and base product categories.
  • Sales increased by mid-to-high single digits organically in the combined Graphics and Reflective Solutions businesses.
  • On an organic basis, sales were up mid-teens in North America, approximately 40% in Western Europe, and high-teens in emerging markets.

• Reported operating margin increased 60 basis points to 14.3%. Adjusted EBITDA (non-GAAP) increased 10% to $235 million; adjusted EBITDA margin (non-GAAP) remained strong at 15.6%.

• Inflation continues to be significant in the company’s materials businesses, with it now anticipating more than 20% inflation in 2022 compared to prior year.

Retail Branding and Information Solutions

• Reported sales increased 17% to $623 million. Sales were up 22% ex. currency and 7% on an organic basis.
  • High value categories sales were up high-teens on an organic basis.
  • Sales decreased by low-single digits organically in base apparel, as customers adjust inventory levels.
  • Enterprise-wide Intelligent Labels sales were up approximately 20% year-to-date on an organic basis.

• Reported operating margin increased 120 basis points to 12.2%. Adjusted EBITDA increased 19% to $118 million; adjusted EBITDA margin remained strong at 18.9%.

Industrial and Healthcare Materials

• Reported sales decreased 2% to $192 million, up 5% on an organic basis.

• Reported operating margin increased 100 basis points to 10.6%. Adjusted EBITDA margin of 14.3% was up sequentially and year-over-year.

Other

Balance Sheet and Capital Deployment

During the first three quarters of the year, the company deployed $37 million for acquisitions and returned $497 million in cash to shareholders, up $207 million compared to last year, through a combination of share repurchases and dividends. In the first nine months, the company repurchased 1.8 million shares at an aggregate cost of $319 million. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down 1.9 million compared to the same time last year.

The company’s balance sheet remains strong, with ample capacity to continue executing its long-term capital allocation strategy. Net debt to adjusted EBITDA (non-GAAP) was 2.1 at the end of the third quarter.

Income Taxes

The company’s reported third quarter effective tax rate was 18.7%. The adjusted tax rate (non-GAAP) for the quarter was 25.0%, reflecting the company’s expectation for a full-year adjusted tax rate of 25.4%.

Cost Reduction Actions

During the first three quarters of the year, the company realized approximately $19 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $9 million.

Guidance

In its supplemental presentation materials, “Third Quarter 2022 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2022 financial results. Based on the factors listed and other assumptions, the company has narrowed its guidance range for 2022 reported earnings per share from $9.60 to $9.90 to $9.65 to $9.80.

Excluding an estimated $0.05 per share related to restructuring charges and other items, the company narrowed its guidance range for adjusted earnings per share from $9.70 to $10.00 to $9.70 to $9.85, including an incremental $0.10 currency translation headwind.