- 3Q18 Reported EPS of $1.69
- Adjusted EPS (non-GAAP) of $1.45
- 3Q18 Net sales increased 4.8% to $1.76
billion
- Sales change ex. currency (non-GAAP) of
6.1%
- FY18 Reported EPS guidance raised by
$0.07, reflecting reduction in restructuring cost estimate
- Maintained guidance for FY18 Adjusted
EPS, despite incremental second half headwind from currency
translation
Avery Dennison Corporation (NYSE:AVY) today announced
preliminary, unaudited results for its third quarter ended
September 29, 2018. All 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 had another solid quarter, in line with our expectations,
with strong top-line growth and adjusted EPS up 15 percent,” said
Mitch Butier, President and CEO. “Label and Graphic Materials
delivered strong sales growth, while its margin declined in the
face of continued inflationary pressure; we expect meaningful
recovery in the fourth quarter, as recent pricing actions take full
effect. Retail Branding and Information Solutions continues to
deliver, with another quarter of strong sales growth in both the
base business and RFID, along with significant margin expansion.
Results for Industrial and Healthcare Materials were disappointing,
as organic sales were down modestly, driven by a decline in the
China automotive business.
“We remain confident in the adjusted earnings guidance we
communicated last quarter, despite incremental currency headwinds
and continued inflationary pressure,” added Butier. “Our ability to
consistently achieve our strategic and financial goals continues to
demonstrate the resilience of our business and the talent of our
team.”
For more details on the company’s results, see the summary table
accompanying this news release, as well as the supplemental
presentation materials, “Third Quarter 2018 Financial Review and
Analysis,” posted on the company’s website at
www.investors.averydennison.com, and furnished to the SEC on Form
8-K.
Third Quarter 2018 Results by
Segment
Sales change ex. currency refers to the increase or decrease in
sales excluding the estimated impact of foreign currency
translation and currency adjustment for transitional reporting of
highly inflationary economies (Argentina). 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. Organic sales change refers to the increase or
decrease in sales excluding the estimated impact of foreign
currency translation, currency adjustment for transitional
reporting of highly inflationary economies (Argentina), product
line exits, and acquisitions and divestitures. Adjusted operating
margin refers to income before taxes, interest expense, other
non-operating expense, and other expense, net, as a percentage of
sales.
Label and Graphic Materials
- Reported sales increased 5.0 percent;
on an organic basis, sales grew 6.4 percent. Sales on an organic
basis increased mid-single digits in Label and Packaging Materials
and high-single digits in the combined Graphics and Reflective
Solutions businesses.
- Reported operating margin decreased 20
basis points to 12.8 percent, including an 80 basis points net
benefit from restructuring charges and an Argentine peso
remeasurement loss. The benefits from higher volume/mix were more
than offset by the net impact of pricing and raw material costs
(excluding the effects of currency) and transition costs associated
with our European restructuring. Adjusted operating margin
decreased 100 basis points to 12.3 percent.
Retail Branding and Information Solutions
- Reported sales increased 6.6 percent;
on an organic basis, sales grew 8.2 percent, driven by strength in
both the base business and radio frequency identification (RFID)
solutions.
- Reported operating margin increased 360
basis points to 10.6 percent, including a 120 basis points benefit
from a reduction in restructuring charges. The benefits from higher
volume and productivity were partially offset by growth-related
investments and higher employee-related costs. Adjusted operating
margin increased 240 basis points to 11.4 percent.
Industrial and Healthcare Materials
- Reported sales decreased 0.8 percent;
on an organic basis, sales declined 0.4 percent driven by a decline
in the China automotive business, which offset strong mid-single
digit growth for the rest of the industrial categories.
- Reported operating margin increased 80
basis points to 9.2 percent, including a benefit from lower
transaction and transition costs related to prior year
acquisitions, as well as lower employee-related costs, which more
than offset growth-related investments and the net impact of
pricing and raw material costs. Adjusted operating margin increased
60 basis points to 9.2 percent.
Other
Share Repurchases / Equity Dilution
The company repurchased 0.7 million shares in the third quarter
at an aggregate cost of $72 million. Net of dilution from long-term
incentives, the company’s share count at the end of the quarter was
down by 1.5 million compared to the same time last year.
Year-to-date, the company returned $306 million in cash to
shareholders through a combination of share repurchases and
dividends, up from $221 million for the same period last year.
Income Taxes
The third quarter GAAP effective tax rate was 10.5 percent,
compared to 26.2 percent in the prior year, primarily driven by tax
benefits from the deduction of the third quarter pension
contribution on the company’s 2017 U.S. income tax return. The full
year GAAP effective tax rate is estimated to be approximately 20
percent.
The adjusted non-GAAP tax rate for the quarter was 25 percent,
consistent with the company’s previous guidance.
Cost Reduction Actions
In the third quarter, the company realized approximately $6
million in pretax savings from restructuring, net of transition
costs, and recognized a net benefit in pretax restructuring charges
in the amount of $6.4 million, reflecting a reduction to the
estimate for severance costs associated with LGM’s European
restructuring plan.
U.S. Pension Plan Termination
In connection with the previously announced termination of the
Avery Dennison Pension Plan, a tax-qualified U.S. defined benefit
plan, the company contributed $200 million to the plan during the
third quarter using commercial paper borrowings. The company
expects to contribute an additional estimated $30 million during
2019, to fully fund the plan and complete the transaction. The
company continues to estimate that the after-tax impact of actions
connected with the termination will reduce reported EPS by $0.50 to
$0.70 in 2018, and an additional $4.25 to $4.45 during 2019,
reflecting estimated total pre-tax settlement charges in the range
of $575 million to $600 million.
Outlook
In its supplemental presentation materials, “Third Quarter 2018
Financial Review and Analysis,” the company provides a list of
factors that it believes will contribute to its 2018 financial
results. Based on the factors listed and other assumptions, the
company now expects 2018 reported earnings per share of $4.57 to
$4.92. Excluding an estimated $1.18 to $1.38 per share for
restructuring charges, pension settlement charges, and other items,
the company expects adjusted earnings per share (non-GAAP) of $5.95
to $6.10, which is unchanged from its guidance in July.
Note: Throughout this release and the supplemental presentation
materials, amounts on a per share basis reflect fully diluted
shares outstanding.
About Avery Dennison
Avery Dennison (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 employs
approximately 30,000 employees in more than 50 countries. Reported
sales in 2017 were $6.6 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. 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: fluctuations in demand
affecting sales to customers; worldwide and local economic
conditions; changes in political conditions; changes in
governmental laws and regulations; fluctuations in foreign currency
exchange rates and other risks associated with foreign operations,
including in emerging markets; the financial condition and
inventory strategies of customers; changes in customer preferences;
fluctuations in cost and availability of raw materials; our ability
to generate sustained productivity improvement; our ability to
achieve and sustain targeted cost reductions; the impact of
competitive products and pricing; loss of significant contracts or
customers; collection of receivables from customers; selling
prices; business mix shift; execution and integration of
acquisitions; timely development and market acceptance of new
products, including sustainable or sustainably-sourced products;
investment in development activities and new production facilities;
amounts of future dividends and share repurchases; customer and
supplier concentrations; successful implementation of new
manufacturing technologies and installation of manufacturing
equipment; disruptions in information technology systems, including
cyber-attacks or other intrusions to network security; successful
installation of new or upgraded information technology systems;
data security breaches; volatility of financial markets; impairment
of capitalized assets, including goodwill and other intangibles;
credit risks; our ability to obtain adequate financing arrangements
and maintain access to capital; fluctuations in interest and tax
rates; changes in tax laws and regulations, including the Tax Cuts
and Jobs Act, and uncertainties associated with interpretations of
such laws and regulations; outcome of tax audits; fluctuations in
pension, insurance, and employee benefit costs, including risks
related to the termination of our U.S. pension plan; the impact of
legal and regulatory proceedings, including with respect to
environmental, health and safety; protection and infringement of
intellectual property; the impact of epidemiological events on the
economy and our customers and suppliers; acts of war, terrorism,
and natural disasters; and other factors.
We believe that the most significant risk factors that could
affect our financial performance in the near-term include: (1) the
impacts of global economic conditions and political uncertainty on
underlying demand for our products and foreign currency
fluctuations; (2) the degree to which higher costs can be offset
with productivity measures and/or passed on to customers through
selling price increases, without a significant loss of volume; (3)
competitors' actions, including pricing, expansion in key markets,
and product offerings; and (4) the execution and integration of
acquisitions.
For a more detailed discussion of these and other factors, see
“Risk Factors” and “Management’s Discussion and Analysis of Results
of Operations and Financial Condition” in our 2017 Form 10-K, filed
with the Securities and Exchange Commission on February 21, 2018,
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)
% Change vs.
P/Y
3Q 3Q Ex.
2018
2017
Reported
Currency
(a)
Organic
(b)
Net sales, by segment: Label and Graphic Materials
$
1,194.2 $ 1,137.3 5.0 % 6.4 %
6.4 % Retail Branding and Information Solutions
398.4
373.8 6.6 % 8.2 % 8.2 % Industrial and
Healthcare Materials
167.1
168.4 (0.8 %) (0.4 %) (0.4 %)
Total net sales
$ 1,759.7 $ 1,679.5
4.8 % 6.1 % 6.1 %
As Reported
(GAAP) Adjusted Non-GAAP (c) 3Q 3Q
% % of Sales 3Q 3Q % % of
Sales
2018
2017
Change
2018
2017
2018
2017
Change
2018
2017
Operating income (loss) / operating
margins before interest, other non-operating expense, and taxes, by
segment:
Label and Graphic Materials
$ 152.9 $
147.5 12.8 % 13.0 % $ 146.9 $
150.7 12.3 % 13.3 % Retail Branding and Information Solutions
42.4 26.1 10.6 % 7.0 %
45.4 33.5 11.4 % 9.0 % Industrial and Healthcare Materials
15.3 14.2 9.2 % 8.4 %
15.3 14.4 9.2 % 8.6 % Corporate expense
(18.9
) (20.5 ) (18.9 )
(20.5 )
Total operating income / operating margins
before interest, other non-operating expense, and taxes
$ 191.7 $ 167.3 15 %
10.9 % 10.0 % $ 188.7 $ 178.1 6 % 10.7
% 10.6 % Interest expense
$ 14.7 $
16.8 $ 14.7 $ 16.8 Other non-operating expense (d)
$ 9.0 $ 3.7 $ 2.3 $ 3.7 Income
before taxes
$ 168.0 $ 146.8 14
% 9.5 % 8.7 % $ 171.7 $ 157.6 9
% 9.8 % 9.4 % Provision for income taxes (e)
$
17.7 $ 38.5 $ 42.9 $ 44.1 Equity method
investment net losses
($0.8 ) --- ($0.8 ) ---
Net income
$ 149.5 $ 108.3 38
% 8.5 % 6.4 % $ 128.0 $ 113.5 13
% 7.3 % 6.8 % Net income per common share, assuming dilution
$ 1.69 $ 1.20 41 % $ 1.45
$ 1.26 15 %
2018
2017
3Q Free Cash Flow (f) $ 132.9 $ 163.0 YTD Free Cash Flow (f) $
260.5 $ 256.0 See accompanying schedules A-4
to A-8 for reconciliations from GAAP to non-GAAP financial
measures. (a) Percentage change in sales excluding the
estimated impact of foreign currency translation and currency
adjustment for transitional reporting of highly inflationary
economies (Argentina). (b) Percentage change in sales
excluding the estimated impact of foreign currency translation,
currency adjustment for transitional reporting of highly
inflationary economies (Argentina), product line exits,
acquisitions and divestitures, and, where applicable, the extra
week in our fiscal year. (c) Excludes impact of
restructuring charges and other items. (d) In the first
quarter of 2018, we adopted ASU No. 2017-07, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost, on a retrospective basis. This ASU
requires employers with defined benefit plans to present the
components of net periodic benefit cost, other than service cost,
outside of operating income. Prior year results have been
reclassified as required by the ASU. "Other non-operating
expense" for the third quarter of 2018 includes pension settlement
of $6.7. (e) We continue to assess our fourth quarter 2017
provisional estimate defined under SEC Staff Accounting Bulletin
No. 118 related to the U.S. Tax Cuts and Jobs Act of 2017. We
expect to complete our assessment within the allowed one-year
measurement period. (f) Free cash flow refers to cash flow
from operations, 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 sales
(purchases) of investments and proceeds from insurance. Free cash
flow is also adjusted for the cash contributions and cash tax
effects related to the termination of our U.S. pension plan.
A-1
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(UNAUDITED) Three Months Ended Nine Months
Ended Sep. 29, 2018 Sep. 30, 2017 Sep.
29, 2018 Sep. 30, 2017
Net sales $ 1,759.7 $
1,679.5 $ 5,390.3 $ 4,878.5 Cost of products sold 1,300.5
1,227.9 3,946.3 3,531.9
Gross profit 459.2
451.6 1,444.0 1,346.6 Marketing, general and administrative
expense 270.5 273.5 853.0 824.1 Other (income) expense,
net(1) (3.0 ) 10.8 66.9 27.5 Interest expense 14.7 16.8 42.2
49.7 Other non-operating expense(2) 9.0 3.7 14.9 13.1
Income before taxes 168.0 146.8 467.0 432.2
Provision for income taxes(3) 17.7 38.5 94.9 90.8
Equity method investment net losses (0.8 ) --- (1.8 ) ---
Net income $ 149.5 $ 108.3 $ 370.3 $
341.4
Per share amounts: Net
income per common share, assuming dilution $ 1.69 $ 1.20 $ 4.16 $
3.79
Weighted average number of common shares
outstanding, assuming dilution
88.5
89.9 89.1
90.1 (1) "Other (income) expense, net"
for the third quarter of 2018 includes severance and related costs,
net of reversals of ($7.1) and asset impairment charges of $.7,
partially offset by Argentine peso remeasurement transition loss of
$3.4. "Other (income) expense, net" for the third quarter of
2017 includes severance and related costs of $8.7, asset impairment
and lease cancellation charges of $1.8, and transaction costs of
$.3. "Other (income) expense, net" for 2018 YTD includes
severance and related costs of $56, asset impairment and lease
cancellation charges of $9.7, Argentine peso remeasurement
transition loss of $3.4, and other restructuring-related charge of
$.5, partially offset by net gain on sales of assets of $2.7.
"Other (income) expense, net" for 2017 YTD includes
severance and related costs of $21.7, asset impairment and lease
cancellation charges of $2.1, and transaction costs of $3.7.
(2) In the first quarter of 2018, we adopted Accounting Standards
Update (ASU) No. 2017-07, Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,
on a retrospective basis. This ASU requires employers with defined
benefit plans to present the components of net periodic benefit
cost, other than service cost, outside of operating income. Prior
year results have been reclassified as required by the ASU.
"Other non-operating expense" for 2018 YTD includes pension
settlements of $7.4. (3) We continue to assess our fourth
quarter 2017 provisional estimate defined under SEC Staff
Accounting Bulletin No. 118 related to the U.S. Tax Cuts and Jobs
Act ("TCJA") of 2017. We expect to complete our assessment within
the allowed one-year measurement period.
A-2
AVERY
DENNISON CORPORATION PRELIMINARY CONDENSED CONSOLIDATED
BALANCE SHEETS (In millions)
(UNAUDITED)
ASSETS
Sep. 29, 2018
Sep. 30, 2017
Current assets: Cash and cash equivalents $ 217.6 $
232.3 Trade accounts receivable, net 1,235.7 1,184.8 Inventories,
net 682.5 620.0 Assets held for sale 3.6 6.8 Other current assets
219.4 239.4 Total current assets 2,358.8 2,283.3
Property, plant and equipment, net 1,086.9 1,047.0 Goodwill
and other intangibles resulting from business acquisitions, net
1,101.7 1,147.2 Non-current deferred income taxes 195.1 347.4 Other
assets 439.4 445.1 $ 5,181.9 $ 5,270.0
LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities: Short-term borrowings and current portion of long-term
debt and capital leases $ 571.7 $ 383.0 Accounts payable 1,048.0
949.2 Other current liabilities 738.5 691.1 Total
current liabilities 2,358.2 2,023.3 Long-term debt and
capital leases 1,295.3 1,298.4 Other long-term liabilities 481.3
813.4 Shareholders' equity: Common stock 124.1 124.1 Capital in
excess of par value 862.4 854.6 Retained earnings 2,809.4 2,693.3
Treasury stock at cost (2,008.4 ) (1,838.0 ) Accumulated other
comprehensive loss (740.4 ) (699.1 ) Total
shareholders' equity 1,047.1 1,134.9 $ 5,181.9 $
5,270.0
A-3
AVERY DENNISON
CORPORATION PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (In millions)
(UNAUDITED)
Nine Months Ended
Sep. 29, 2018
Sep. 30, 2017
Operating Activities: Net income $
370.3 $ 341.4 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation 106.2
92.6 Amortization 29.8 42.2 Provision for doubtful
accounts and sales returns 34.3 28.1 Net losses from
impairments, sales of assets, and investment settlements 5.9 1.2
Stock-based compensation 24.8 22.2 Loss from
settlement of pension obligations 7.4 --- Deferred income
taxes (7.8 ) (7.6 ) Other non-cash expense and loss 41.5
41.0 Changes in assets and liabilities and other adjustments
(424.7 ) (171.2 ) Net cash provided by operating
activities 187.7 389.9
Investing Activities:
Purchases of property, plant and equipment (132.7 ) (111.4 )
Purchases of software and other deferred charges (21.5 )
(23.5 ) Proceeds from sales of property, plant and equipment
9.4 3.0 Sales (purchases) of investments and proceeds from
insurance, net 17.6 (2.0 ) Payments for acquisitions, net of
cash acquired, and investments in businesses (0.2 ) (309.5 )
Net cash used in investing activities (127.4 ) (443.4 )
Financing Activities: Net increase
(decrease) in borrowings (maturities of three months or less) 301.4
(220.1 ) Additional long-term borrowings --- 526.6
Repayments of long-term debt and capital leases (4.4 ) (2.5 )
Dividends paid (130.6 ) (115.8 ) Share repurchases
(175.1 ) (104.8 ) Proceeds from exercises of stock options,
net 1.0 17.7 Tax withholding for stock-based compensation
(32.9 ) (20.3 ) Payments of contingent consideration (17.3 )
--- Net cash (used in) provided by financing
activities (57.9 ) 80.8 Effect of foreign currency
translation on cash balances (9.2 ) 9.9 (Decrease)
increase in cash and cash equivalents (6.8 ) 37.2 Cash and
cash equivalents, beginning of year 224.4 195.1 Cash
and cash equivalents, end of period $ 217.6 $ 232.3
In the first quarter of 2018, we adopted ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments, on a
retrospective basis. This ASU reduces the diversity in the
presentation and classification of certain cash receipts and cash
payments in the statement of cash flows. Prior year results have
been reclassified as required by the ASU.
A-4
Reconciliation of Non-GAAP Financial Measures to GAAP
We report our financial results in conformity with
accounting principles generally accepted in the United States of
America, or GAAP, and also communicate with investors using certain
non-GAAP financial measures. These non-GAAP financial measures are
not in accordance with, nor are they a substitute for or superior
to, the comparable GAAP financial measures. These non-GAAP
financial measures are intended to supplement presentation of our
financial results that are prepared in accordance with GAAP. Based
upon feedback from investors and financial analysts, we believe
that the supplemental non-GAAP financial measures we provide are
useful to their assessment of our performance and operating trends,
as well as liquidity. Our non-GAAP financial measures
exclude the impact of certain events, activities or strategic
decisions. The accounting effects of these events, activities or
decisions, which are included in the GAAP financial measures, may
make it difficult to assess our underlying performance in a single
period. By excluding the accounting effects, both positive or
negative, of certain items (e.g., restructuring charges, legal
settlements, certain effects of strategic transactions and related
costs, losses from debt extinguishments, gains and losses from
curtailment and settlement of pension obligations, gains or losses
on sales of certain assets, and other items), we believe that we
are providing meaningful supplemental information that facilitates
an understanding of our core operating results and liquidity
measures. These non-GAAP financial measures are used internally to
evaluate trends in our underlying performance, as well as to
facilitate comparison to the results of competitors for a single
period. While some of the items we exclude from GAAP financial
measures recur, they tend to be disparate in amount, frequency, or
timing. We use the following non-GAAP financial measures in
the accompanying news release and presentation: Sales change
ex. currency refers to the increase or decrease in sales excluding
the estimated impact of foreign currency translation and currency
adjustment for transitional reporting of highly inflationary
economies (Argentina). 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. Organic
sales change refers to the increase or decrease in sales excluding
the estimated impact of foreign currency translation, currency
adjustment for transitional reporting of highly inflationary
economies (Argentina), product line exits, acquisitions and
divestitures, and, where applicable, the extra week in our fiscal
year. We believe that sales change ex. currency and organic
sales change assist investors in evaluating the sales growth from
the ongoing activities of our businesses and provide greater
ability to evaluate our results from period to period.
Adjusted operating income refers to income before taxes, interest
expense, other non-operating expense, and other (income) expense,
net. Adjusted operating margin refers to adjusted operating
income as a percentage of sales. Adjusted tax rate refers to
the projected full-year GAAP tax rate, adjusted to exclude certain
unusual or infrequent events that are expected to significantly
impact the GAAP tax rate, such as updates to the year-end 2017 TCJA
provisional amount, as well as additional items such as impacts
related to our U.S. pension plan termination and the effects of
certain potential tax planning actions. Adjusted net income
refers to income before taxes, tax-effected at the adjusted tax
rate, and adjusted for tax-effected restructuring charges and other
items. Adjusted net income per common share, assuming
dilution (adjusted EPS) refers to adjusted net income divided by
weighted average number of common shares outstanding, assuming
dilution. We believe that adjusted operating margin,
adjusted net income, and adjusted EPS assist investors in
understanding our core operating trends and comparing our results
with those of our competitors. Free cash flow refers to cash
flow from operations, 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 sales (purchases) of investments and proceeds from insurance.
Free cash flow is also adjusted for the cash contributions and cash
tax effects related to the termination of our U.S. pension plan. We
believe that free cash flow assists investors by showing the amount
of cash we have available for debt reductions, dividends, share
repurchases, and acquisitions. The following reconciliations
are provided in accordance with Regulations G and S-K and reconcile
our non-GAAP financial measures with the most directly comparable
GAAP financial measures.
A-5
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL
MEASURES (In millions, except % and per share amounts)
(UNAUDITED)
Three Months Ended Nine Months Ended Sep.
29, 2018 Sep. 30, 2017 Sep. 29, 2018 Sep. 30,
2017 Reconciliation from GAAP to
Non-GAAP operating margins: Net sales $ 1,759.7 $
1,679.5 $ 5,390.3 $ 4,878.5 Income before taxes $
168.0 $ 146.8 $ 467.0 $ 432.2 Income before taxes as
a percentage of sales 9.5 % 8.7 % 8.7 % 8.9 %
Adjustments: Interest expense $ 14.7 $ 16.8 $ 42.2 $ 49.7 Other
non-operating expense 9.0 3.7 14.9 13.1 Operating
income before interest expense, other non-operating expense, and
taxes $ 191.7 $ 167.3 $ 524.1 $ 495.0 Operating
margins 10.9 % 10.0 % 9.7 % 10.1 % Income
before taxes $ 168.0 $ 146.8 $ 467.0 $ 432.2 Adjustments:
Restructuring charges: Severance and related costs,
net of reversals (7.1 ) 8.7 56.0 21.7 Asset impairment and
lease cancellation charges 0.7 1.8 9.7 2.1 Argentine peso
remeasurement transition loss 3.4 --- 3.4 --- Other
restructuring-related charge --- --- 0.5 --- Net gain on
sales of assets --- --- (2.7 ) --- Transaction costs --- 0.3
--- 3.7 Interest expense 14.7 16.8 42.2 49.7 Other
non-operating expense 9.0 3.7 14.9 13.1
Adjusted operating income before interest
expense, other non-operating expense, and taxes (non-GAAP)
$ 188.7 $ 178.1 $ 591.0 $ 522.5 Adjusted operating
margins (non-GAAP) 10.7 % 10.6 % 11.0 % 10.7 %
Reconciliation from GAAP to Non-GAAP net income: As
reported net income $ 149.5 $ 108.3 $ 370.3 $ 341.4
Adjustments: Restructuring charges, net of reversals (6.4 )
10.5 65.7 23.8 Argentine peso remeasurement transition loss 3.4 ---
3.4 --- Other restructuring-related charge --- --- 0.5 --- Net gain
on sales of assets --- --- (2.7 ) --- Transaction costs --- 0.3 ---
3.7 Pension settlements 6.7 --- 7.4 --- Tax benefit from pension
plan contributions(1) (31.0 ) --- (31.0 ) --- Tax effect on pre-tax
adjustments and impact of adjusted tax rate(2) 5.8 (5.6 ) (9.4 )
(37.9 ) Adjusted net income (non-GAAP) $ 128.0 $
113.5 $ 404.2 $ 331.0
A-5
(continued)
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL
MEASURES (In millions, except % and per share amounts)
(UNAUDITED) Three
Months Ended Nine Months Ended Sep. 29,
2018 Sep. 30, 2017 Sep. 29, 2018 Sep. 30,
2017 Reconciliation from GAAP to Non-GAAP net
income per common share: As reported net income per
common share, assuming dilution $ 1.69 $ 1.20 $ 4.16 $ 3.79
Adjustments per common share, net of tax:
Restructuring charges, Argentine peso
remeasurement transition loss, other restructuring-related charge,
pension settlements, transaction costs, and net gain on sales of
assets(2)
(0.24 ) 0.06 0.38 (0.12 ) Adjusted net income
per common share, assuming dilution (non-GAAP) $ 1.45 $ 1.26 $ 4.54
$ 3.67 Weighted average number of common shares
outstanding, assuming dilution 88.5 89.9 89.1 90.1
(1) Tax benefits from the deduction of the third quarter pension
contributions on the company's 2017 U.S. income tax return. (2) The
adjusted tax rate was 25% for the three and nine months ended Sep.
29, 2018, and 28% for the three and nine months ended Sep. 30,
2017.
(UNAUDITED) Three Months Ended
Nine Months Ended Sep. 29, 2018 Sep. 30,
2017 Sep. 29, 2018 Sep. 30, 2017
Reconciliation of free cash flow: Net cash (used in)
provided by operating activities $ (21.8 ) $ 214.3 $ 187.7 $ 389.9
Purchases of property, plant and equipment (53.2 ) (44.9 )
(132.7 ) (111.4 ) Purchases of software and other deferred
charges (7.6 ) (8.6 ) (21.5 ) (23.5 ) Proceeds from sales of
property, plant and equipment 0.1 2.8 9.4 3.0 Sales
(purchases) of investments and proceeds from insurance, net 15.4
(0.6 ) 17.6 (2.0 ) Pension plan contribution for plan
termination 200.0 --- 200.0 --- Free cash flow
(non-GAAP) $ 132.9 $ 163.0 $ 260.5 $ 256.0
A-6
AVERY DENNISON CORPORATION PRELIMINARY
SUPPLEMENTARY INFORMATION (In millions, except %)
(UNAUDITED) Third Quarter Ended NET
SALES OPERATING INCOME (LOSS) OPERATING MARGINS 2018
2017
2018(1)
2017(2)
2018 2017 Label and Graphic Materials $
1,194.2 $ 1,137.3 $ 152.9 $ 147.5 12.8 % 13.0 % Retail Branding and
Information Solutions 398.4 373.8 42.4 26.1 10.6 % 7.0 % Industrial
and Healthcare Materials 167.1 168.4 15.3 14.2 9.2 % 8.4 %
Corporate Expense N/A N/A
(18.9 ) (20.5 ) N/A N/A
TOTAL FROM OPERATIONS $ 1,759.7 $
1,679.5 $ 191.7 $ 167.3 10.9 %
10.0 % (1) Operating income for the
third quarter of 2018 includes severance and related costs, net of
reversals of ($7.1) and asset impairment charges of $.7, partially
offset by Argentine peso remeasurement transition loss of $3.4. Of
the total ($3), the Label and Graphic Materials segment recorded
($6) and the Retail Branding and Information Solutions segment
recorded $3. (2) Operating income for the third quarter of
2017 includes severance and related costs of $8.7, asset impairment
and lease cancellation charges of $1.8, and transaction costs of
$.3. Of the total $10.8, the Label and Graphic Materials segment
recorded $3.2, the Retail Branding and Information Solutions
segment recorded $7.4, and the Industrial and Healthcare Materials
segment recorded $.2.
RECONCILIATION FROM GAAP TO
NON-GAAP SUPPLEMENTARY INFORMATION
Third
Quarter Ended OPERATING INCOME OPERATING MARGINS 2018
2017 2018 2017
Label and Graphic
Materials
Operating income and margins, as reported $ 152.9 $ 147.5 12.8 %
13.0 % Adjustments: Restructuring charges: Severance and related
costs, net of reversals (9.7 ) 2.9 (0.8 %) 0.3 % Asset impairment
and lease cancellation charges 0.3 0.2 --- --- Argentine peso
remeasurement transition loss 3.4 --- 0.3 % --- Transaction costs
--- 0.1 ---
--- Adjusted operating income and margins
(non-GAAP) $ 146.9 $ 150.7 12.3 %
13.3 %
Retail Branding
and Information Solutions
Operating income and margins, as reported $ 42.4 $ 26.1 10.6 % 7.0
% Adjustments: Restructuring charges: Severance and related costs
2.6 5.8 0.7 % 1.6 % Asset impairment and lease cancellation charges
0.4 1.6 0.1 %
0.4 % Adjusted operating income and margins
(non-GAAP) $ 45.4 $ 33.5 11.4 %
9.0 %
Industrial and
Healthcare Materials
Operating income and margins, as reported $ 15.3 $ 14.2 9.2 % 8.4 %
Adjustments: Transaction costs ---
0.2 --- 0.2 % Adjusted
operating income and margins (non-GAAP) $ 15.3
$ 14.4 9.2 % 8.6 %
A-7
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Nine Months Year-to-Date NET SALES OPERATING
INCOME (LOSS) OPERATING MARGINS 2018 2017
2018(1)
2017(2)
2018 2017 Label and Graphic Materials $
3,669.7 $ 3,350.0 $ 418.1 $ 436.6 11.4 % 13.0 % Retail Branding and
Information Solutions 1,201.1 1,115.7 122.4 82.9 10.2 % 7.4 %
Industrial and Healthcare Materials 519.5 412.8 44.9 39.1 8.6 % 9.5
% Corporate Expense N/A N/A
(61.3 ) (63.6 ) N/A
N/A TOTAL FROM OPERATIONS $
5,390.3 $ 4,878.5 $ 524.1 $ 495.0
9.7 % 10.1 % (1) Operating
income for 2018 includes severance and related costs of $56, asset
impairment and lease cancellation charges of $9.7, Argentine peso
remeasurement transition loss of $3.4, and other
restructuring-related charge of $.5, partially offset by net gain
on sales of assets of $2.7. Of the total $66.9, the Label and
Graphic Materials segment recorded $59.9, the Retail Branding and
Information Solutions segment recorded $9.1, the Industrial and
Healthcare Materials segment recorded $.2, and Corporate recorded
($2.3). (2) Operating income for 2017 includes severance and
related costs of $21.7, asset impairment and lease cancellation
charges of $2.1, and transaction costs of $3.7. Of the total $27.5,
the Label and Graphic Materials segment recorded $10.4, the Retail
Branding and Information Solutions segment recorded $14, and the
Industrial and Healthcare Materials segment recorded $3.1.
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY
INFORMATION
Nine Months Year-to-Date
OPERATING INCOME OPERATING MARGINS 2018 2017
2018 2017
Label and Graphic
Materials
Operating income and margins, as reported $ 418.1 $ 436.6 11.4 %
13.0 % Adjustments: Restructuring charges: Severance and related
costs 48.7 9.6 1.3 % 0.3 % Asset impairment and lease cancellation
charges 7.2 0.3 0.2 % --- Argentine peso remeasurement transition
loss 3.4 --- 0.1 % --- Other restructuring-related charge 0.5 ---
--- --- Loss on sale of assets 0.1 --- --- --- Transaction costs
--- 0.5 ---
--- Adjusted operating income and margins
(non-GAAP) $ 478.0 $ 447.0 13.0 %
13.3 %
Retail Branding
and Information Solutions
Operating income and margins, as reported $ 122.4 $ 82.9 10.2 % 7.4
% Adjustments: Restructuring charges: Severance and related costs
7.1 11.9 0.5 % 1.1 % Asset impairment and lease cancellation
charges 2.5 1.8 0.2 % 0.2 % Net gain on sales of assets (0.5 ) ---
--- --- Transaction costs related to sale of product line
--- 0.3 ---
--- Adjusted operating income and margins (non-GAAP)
$ 131.5 $ 96.9 10.9 %
8.7 %
Industrial and
Healthcare Materials
Operating income and margins, as reported $ 44.9 $ 39.1 8.6 % 9.5 %
Adjustments: Restructuring charges: Severance and related costs 0.2
0.2 0.1 % --- Transaction costs ---
2.9 --- 0.7 % Adjusted
operating income and margins (non-GAAP) $ 45.1
$ 42.2 8.7 % 10.2 %
A-8
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION (UNAUDITED)
Third Quarter 2018
Total
Company
Label and
Graphic
Materials
Retail Branding
and Information
Solutions
Industrial and
Healthcare
Materials
Reconciliation from GAAP to Non-GAAP sales change Reported
sales change 4.8 % 5.0 % 6.6 % (0.8 %) Foreign currency translation
1.3 % 1.4 % 1.6 %
0.4 % Sales change ex. currency (non-GAAP) 6.1 % 6.4
% 8.2 % (0.4 %) Acquisitions ---
--- ---
--- Organic sales change (non-GAAP)
6.1 % 6.4 %
8.2 % (0.4 %)
Nine
Months Year-to-Date 2018
Total
Company
Label and
Graphic
Materials
Retail Branding
and Information
Solutions
Industrial and
Healthcare
Materials
Reconciliation from GAAP to Non-GAAP sales change Reported
sales change 10.5 % 9.5 % 7.7 % 25.8 % Foreign currency translation
(2.9 %) (3.6 %) (0.7 %)
(3.2 %) Sales change ex. currency
(non-GAAP)(1) 7.6 % 6.0 % 7.0 % 22.7 % Acquisitions
(1.9 %) (0.2 %)
--- (21.1 %) Organic sales
change (non-GAAP) 5.7 %
5.8 % 7.0 % 1.6 %
(1) Totals may not sum due to rounding
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181023005452/en/
Avery Dennison CorporationMedia Relations:Rob
Six, (626)
304-2361rob.six@averydennison.comorInvestor
Relations:Cynthia S. Guenther, (626)
304-2204investorcom@averydennison.com
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