Avery Dennison Corporation today announced preliminary, unaudited second quarter 2010 results.
"Avery Dennison delivered a strong second quarter, with double-digit sales growth and solid margin expansion," said Dean A. Scarborough, Avery Dennison chairman, president and CEO. "I'm especially pleased with the improved performance of Retail Information Services, which expanded operating margin above pre-recession levels. Our core pressure-sensitive materials businesses had solid results, including double-digit sales growth in all regions, and our investments in marketing have enabled us to convert more brand owners to pressure-sensitive solutions from other labeling technologies.
"The second half of the year will be more challenging than the second quarter, which is traditionally our strongest," Scarborough said. "While we expect solid second-half revenue growth, margins will come under pressure from rising raw material costs and Office Products' investments in innovation and demand creation. At the same time, we are on track to exceed our original target for strong free cash flow.
"We are confident about our future," Scarborough said. "We have leadership positions in rapidly growing emerging markets, which continue to lead the global economic recovery. As the world's leading producer of RFID inlays, we're excited by the accelerating growth in demand for item-level retail tagging solutions and other applications. Our investments in developing branding and information solutions are starting to pay off in innovative products and solutions, better service and stronger customer relationships. We are well positioned for long-term profitable growth."
Second Quarter 2010 Results by Segment
All references to sales reflect comparisons on an organic basis, which excludes the impact of foreign currency translation. All references to operating margin exclude the impact of restructuring, asset impairment charges, and other items.
Pressure-sensitive Materials (PSM)
- Roll Materials sales grew mid-teens percent, reflecting strength in all regions. Sales grew low-teens percent in the Graphics and Reflective Products division.
- Operating margin increased due to higher volume and the benefits from productivity actions, partially offset by raw material inflation.
Retail Information Services (RIS)
- Sales growth in what is this segment's seasonally largest quarter reflected increased demand, due in part to significant inventory destocking that occurred among apparel retailers in the first half of 2009, as well as new programs with key brands and retailers.
- Operating margin expanded above pre-recession levels due to increased volume and the benefit of restructuring and other productivity initiatives.
Office and Consumer Products (OCP)
- The decline in sales reflected weak end-market demand.
- Operating margin declined due to increased investment in consumer promotions and marketing, as well as lower volume.
Other specialty converting businesses
- Sales growth primarily reflected increased demand for products for automotive applications, which was down sharply in the second quarter of 2009.
- The improvement in operating margin reflected increased volume and the benefit of restructuring and productivity actions, partially offset by raw material inflation.
Consolidated Items and Actions
- In the fourth quarter of 2008, the Company began a restructuring program to reduce costs across all segments of the business. In the second quarter of 2010, the Company delivered approximately $20 million in incremental savings from these actions, net of transition costs, and achieved its goal of $180 million in annualized savings.
- The effective (GAAP) tax rate was 33 percent in the second quarter. The adjusted year-to-date tax rate in the second quarter was 23 percent.
The Company has adjusted its previous guidance. In the Company's supplemental presentation materials, "Second Quarter 2010 Financial Review and Analysis," the Company provides a list of factors that it believes will contribute to its 2010 financial results. Based on the factors listed and other assumptions, the Company now expects reported revenue growth of 7 to 8 percent, adjusted (non-GAAP) Earnings Per Share of $2.60 to $2.80, and Free Cash Flow in 2010 of approximately $350 million.