Avery Dennison Corp. (AVY), a maker of pressure-sensitive materials, office and consumer products, reported Tuesday a slight decline in third-quarter profit, on higher one-time charges. On an adjusted basis, earnings per share rose 1%, and significantly surpassed market projections, despite a 10% drop in net sales. The Pasadena, California-based company recorded poor performance in all segments, reflecting continuing tough market conditions.
Third-quarter net income decreased marginally to $62.5 million from $62.7 million in the prior year period. On a per share basis, net income dropped 6% to $0.59 from $0.63 a year ago.
The latest quarter results included charges of $24.3 million or $0.23 per share, related to certain restructuring and asset impairment charges, transition costs associated with acquisition integrations, and other items, compared to prior year's charges of $17.7 million or $0.18 per share.
On an adjusted basis, net income rose 8% to $86.8 million from $80.4 million in the prior year, and earnings per share edged up 1% to $0.82 from $0.81 last year.
On average, eight analysts polled by Thomson Reuters expected the company to report earnings of $0.57 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter declined 10% to $1.549 billion from $1.725 billion in the comparable period. Five analysts estimated revenues of $1.47 billion for the quarter. On an organic basis, net sales dropped 6%.
Total operating income was $77.4 million, down 20% from $96.3 million last year. Operating margin declined to 3.8% from 3.9% a year ago. Total adjusted operating income dropped 1% to $112.9 million from prior year's $114 million, while adjusted operating margin rose to 7.3% from 6.6% in 2008.
Dean Scarborough, president and chief executive officer of Avery Dennison, commented, "In the face of continuing tough market conditions we increased operating margin, reflecting the strength of our franchise businesses and the effectiveness of our operating model. The combination of fixed-cost reductions and increasing variable margins positions the Company for strong profit growth when markets improve."
Scarborough added, "While the rate of volume decline in the third quarter improved compared with the first half of the year, this was largely due to a slowdown in inventory reductions. Our end-markets remain soft, and we continue to be cautious about the pace of their recovery."
Segment-wise, quarterly net sales from Pressure-sensitive Materials, or PSM, segment, dropped 9% year-over-year to $851 million, and the organic sales drop was 3%. In the quarter, Roll Materials sales declined, reflecting weakness in end-markets, and the company noted that sales continued to decline in the more economically sensitive Graphics and Reflective Products division. However, operating income rose 21% to $75.7 million, as "productivity offset the impact of reduced fixed-cost leverage, while the effects of pricing and raw material trends continued to cover the cumulative impact of 2008 inflation."
In the Retail Information Services segment, net sales fell 14% on a reported basis, and 11% organically, to $325.2 million, mainly due to lower demand for apparel in the U.S. and in Europe, and caution on the part of retailers. The company recorded an operating loss of $29.1 million in the segment, compared to last year's income of $0.5 million, as reduced fixed-cost leverage, pricing, and other factors more than offset the benefit of restructuring and productivity actions.
The company noted that it is continuing initiatives to reduce fixed costs in the segment, in light of current market conditions, while introducing new products and improving value-added services to increase its share of this large market.
Office and Consumer Products' net sales were $242.8 million in the quarter, down 7% on a reported basis, and down 4% organically, reflecting weak end-market demand, led by slower corporate purchase activity. The company said the drop in sales was partially offset by strong back-to-school sales, due in part to expanded distribution and consumer trade-up to more durable binders. The segmental operating income edged down 1% to $41 million, as the benefit of productivity actions was more than offset by the impact of reduced fixed-cost leverage. Net sales from other specialty converting businesses dropped 13% on a reported basis, and 10% on an organic basis, to $130.3 million, primarily due to lower volume of products sold to the housing and construction industries.
In its preceding second quarter, Avery Dennison had reported a 57% slide in its profit to $39.8 million or $0.38 per share, with net sales declining 20%, reflecting challenging conditions in the retail sector. Non-GAAP net income declined to $59.3 million or $0.56 per share from $102.1 million or $1.03 per share in the year-ago quarter. Avery Dennison's net sales for the second quarter were $1.46 billion.
Among others in the sector, Neenah, Wisconsin-based Bemis Co. Inc. (BMS) reported Tuesday that its third-quarter net income attributable to company fell to $35.84 million or $0.33 per share from $44.26 million or $0.43 per share last year. Excluding the effect of acquisition related charges and financing, and a gain on sale of an asset, earnings per share would have been $0.48 for the third quarter of 2009. Net sales declined to $898.93 million from $984.26 million in the prior year quarter.
Fortune Brands, Inc. (FO), a maker of distilled spirits, home/hardware products and golf equipment, reported last Friday a 63.1% fall in net income attributable to Fortune Brands to $124.1 million or $0.82 per share for the third quarter, mainly reflecting much lower one-time gains. On an adjusted basis, quarterly net income fell to $117 million or $0.77 per share from $168.1 million or $1.11 per share last year, on unfavorable foreign exchange and a double-digit decline in net sales. The Deerfield, Illinois-based company's net sales for the quarter fell 10.6% to $1.72 billion. On a comparable basis, total net sales were down 11%.
Home improvement and building products maker Masco Corp. (MAS) reported Monday a decline in net profit for the third quarter to $40 million from $44 million in the year-ago quarter, reflecting higher losses from discontinued operations. The Taylor, Michigan-based company's net profit attributable to Masco was $28 million or $0.08 per share, compared with $33 million or $0.09 per share last year. However, income from continuing operations attributable to Masco increased to $51 million or $0.14 per share from $35 million or $0.09 per share a year ago. Net sales fell 17% year-over-year to $2.09 billion, impacted by lower sales of new home construction products and services and a decline in consumer spending.
For the nine months of fiscal 2009, Avery Dennison's net loss was $796.6 million or $7.73 per share, compared to prior year's income of $223.5 million or $2.26 per share. Adjusted net income fell to $157.5 million or $1.53 per share from $261.4 million or $2.64 per share a year ago. Nine-month net sales also declined to $4.43 billion from $5.20 billion in the same period last year.
Avery Dennison, which began a restructuring program in the fourth quarter last year to reduce costs across all business segments, maintained that it is targeting $160 million in annualized savings by mid-2010. The company still estimates that it will incur approximately $130 million of total restructuring charges associated with these actions, with approximately $110 million to be incurred in 2009. The company also sees approximately $40 million of carryover savings from the previously implemented actions.
In an October 2 research note, UBS downgraded its rating on Avery Dennison stock to 'Sell' from 'Neutral'. On September 11, Robert W. Baird upgraded its rating on the company to 'Neutral' from 'Underperform'.
AVY is currently trading at $37.91, up $1.07 or 2.90%. In the past 52 weeks, shares have been trading in a broad range of $17.02 to $39.12, with an average 3-month volume of 1.6 million shares.
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