- 4Q18 Reported EPS of $1.11, incl.
pension settlement charges
- Adjusted EPS (non-GAAP) of $1.52
- 4Q18 Net sales increased 1.9% to $1.77
billion
- Organic sales change (non-GAAP) of
4.8%
- FY18 Reported EPS of $5.28, incl.
pension settlement charges
- FY18 Net sales increased 8.2% to $7.16
billion
- Sales change ex. currency of 6.9%
- Organic sales change of 5.5%
- Returned $568 mil. to shareholders via
share repurchase and dividends in 2018
- Expect FY19 Reported EPS of $2.70 to
$2.95, incl. pension settlement charge
- Adjusted EPS of $6.45 to $6.70
Avery Dennison Corporation (NYSE:AVY) today announced
preliminary, unaudited results for its fourth quarter and year
ended December 29, 2018. Non-GAAP financial measures referenced in
this document are reconciled to GAAP in the attached tables. Unless
otherwise indicated, comparisons are to the same periods in the
prior year.
“2018 marked the company’s seventh consecutive year of strong
top-line growth, margin expansion, and double-digit adjusted EPS
growth,” said Mitch Butier, President and CEO. “Organic growth for
the year was largely driven by volume, as we continue to benefit
from our focus on high value categories and leadership position in
faster-growing emerging markets.
“Label and Graphic Materials delivered strong organic growth,
while maintaining strong operating margins in the face of
significant raw material inflation. Retail Branding and Information
Solutions’ operating income once again rose significantly,
reflecting outstanding performance in both top-line growth and
margin expansion. And, in a challenging year, Industrial and
Healthcare Materials made progress with its margin turnaround.
“2018 marked an important milestone for the company, as the
final year of measurement for the five-year financial targets we
communicated in early 2014,” added Butier. “I’m pleased to report
that we achieved all of our long-term goals for this period.
“For 2019, we are targeting continued progress toward our 2021
goals,” said Butier. “Notwithstanding a significant headwind from
currency translation and an uncertain economic climate, we expect
to deliver solid top- and bottom-line growth.
“I would like to thank our employees for their dedication to
creating superior value for our customers, investors, and the
communities in which we operate. We remain confident that the
consistent execution of our strategies will enable us to continue
to deliver for all of our key stakeholders.”
Fourth Quarter 2018 Results by
Segment
Label and Graphic Materials
- Reported sales increased 1.7 percent.
On an organic basis, sales grew 4.7 percent. Sales increased
mid-single digits on an organic basis in Label and Packaging
Materials, as well as in the combined Graphics and Reflective
Solutions businesses.
- Reported operating margin increased 60
basis points to 12.7 percent as the benefits of productivity,
increased volume/mix, and the net impact of pricing and raw
material costs more than offset higher employee-related expense and
transition costs associated with the European restructuring plan.
Adjusted operating margin increased 40 basis points to 12.9
percent, rebounding from the third quarter level, as expected.
Retail Branding and Information Solutions
- Reported sales increased 4.2 percent;
on an organic basis, sales grew 6.9 percent, driven by strength in
both the base business and RFID.
- Reported operating margin increased 50
basis points to 11.6 percent as restructuring charges declined and
the benefits from increased volume and productivity more than
offset higher employee-related costs and growth-related
investments. Adjusted operating margin increased 10 basis points to
12.2 percent.
Industrial and Healthcare Materials
- Reported sales declined 1.6 percent. On
an organic basis, sales grew 0.7 percent, driven by solid growth in
industrial categories in North America and Europe and healthcare
globally, largely offset by a decline in industrial products for
the North Asia market (a category that represents roughly 1 percent
of total company sales).
- Reported operating margin increased 270
basis points to 10.3 percent, driven by productivity improvement
initiatives and acquisition-related items. Adjusted operating
margin increased 170 basis points to 9.6 percent.
Other
Share Repurchases / Equity Dilution from Long-Term
Incentives
For the fourth quarter and full year 2018, the company
repurchased 2.3 and 4.0 million shares, respectively, at an
aggregate cost of $218 million and $393 million, respectively. Net
of dilution, the company’s share count decreased by 4.0 million for
the year.
Income Taxes
The company’s reported effective tax rate was negative 10.8
percent for the fourth quarter and positive 15.4 percent for the
full year. The company’s adjusted (non-GAAP) tax rate was 25
percent for both the fourth quarter and full year; this rate
excludes net tax benefits associated with the termination of our
U.S. pension plan, a discrete foreign tax planning action, and the
finalization of accounting for the Tax Cuts and Jobs Act
(“TCJA”).
The company’s 2019 reported effective tax rate is expected to be
in the single digit range, primarily due to the recognition of a
discrete tax benefit of $70 million to $80 million upon completion
of the transaction to terminate the U.S. pension plan. The
company’s 2019 adjusted tax rate is expected to be in the
mid-twenty percent range.
The company’s reported effective tax rate can vary widely from
quarter to quarter due to interim reporting requirements and the
recognition of discrete events.
Cost Reduction Actions
In the fourth quarter and full year 2018, the company realized
approximately $5 million and $31 million, respectively, in pre-tax
savings from restructuring, net of transition costs, and incurred
pre-tax restructuring charges of approximately $8 million and $74
million, respectively, the majority of which represents cash
charges.
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
anticipates it will contribute an additional $50 to 60 million
during 2019, to fully fund the plan and complete the
transaction.
The impact of actions connected with the plan termination and
other pension settlements reduced reported EPS by $0.49, net of
tax, in 2018. The company anticipates that the completion of the
plan termination will reduce reported EPS by approximately $3.55
during the first quarter of 2019.
Financing
In December, the company issued $500 million of 4.875% Senior
Notes due 2028. The company used the net proceeds from the issuance
to repay commercial paper borrowings used to finance the
contribution to our U.S. pension plan in the third quarter, as well
as for other general corporate purposes.
Outlook
In its supplemental presentation materials, “Fourth Quarter and
Full Year 2018 Financial Review and Analysis,” the company provides
a list of factors that it believes will contribute to its 2019
financial results. Based on the factors listed and other
assumptions, the company expects 2019 reported earnings per share
of $2.70 to $2.95.
Excluding an estimated $3.75 per share related to pension
settlement charges, restructuring charges and other items, the
company expects adjusted earnings per share of $6.45 to $6.70.
For more details on the company’s results, see the summary
tables accompanying this news release, as well as the supplemental
presentation materials, “Fourth Quarter and Full Year 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.
Throughout this release and the supplemental presentation
materials, amounts on a per share basis reflect fully diluted
shares outstanding.
Sales change ex. currency refers to the increase or decrease in
sales excluding the estimated impact of 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 sales change ex. currency, excluding
the impact of product line exits, acquisitions and divestitures,
and, where applicable, the extra week in our fiscal year. Adjusted
operating margin refers to income before taxes, interest expense,
other non-operating expense, and other expense, net, as a
percentage of sales.
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 2018 were $7.2 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.
Fourth Quarter
Financial Summary - Preliminary, unaudited (In millions, except
% and per share amounts)
% Change vs.
P/Y 4Q 4Q Ex.
2018 2017
Reported Currency (a)
Organic (b) Net sales, by segment: Label
and Graphic Materials
$ 1,181.4 $
1,161.7 1.7 % 4.7 % 4.7 % Retail Branding and
Information Solutions
412.1 395.5 4.2 %
6.9 % 6.9 % Industrial and Healthcare Materials
175.2
178.1 (1.6 %) 0.7
% 0.7 % Total net sales
$ 1,768.7 $
1,735.3 1.9 % 4.8 % 4.8 %
As Reported (GAAP)
Adjusted Non-GAAP (c) 4Q 4Q
% % of Sales 4Q
4Q % %
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
$ 150.1 $
140.8 12.7 % 12.1 % $ 152.0 $
144.9 12.9 % 12.5 % Retail Branding and Information Solutions
48.0 43.8 11.6 % 11.1 %
50.3 47.9 12.2 % 12.1 % Industrial and Healthcare Materials
18.0 13.5 10.3 % 7.6 %
16.8 14.1 9.6 % 7.9 % Corporate expense
(22.1
) (22.6 ) (22.1 )
(22.4 )
Total operating income / operating margins
before interest, other non-operating expense, and taxes
$ 194.0 $ 175.5 11 %
11.0 % 10.1 % $ 197.0 $ 184.5 7 % 11.1
% 10.6 % Interest expense
$ 16.3 $
13.3 $ 16.3 $ 13.3 Other non-operating expense (d)
$ 89.9 $ 4.9 $ 3.6 $ 4.9 Income
before taxes
$ 87.8 $ 157.3 (44
%) 5.0 % 9.1 % $ 177.1 $ 166.3 6
% 10.0 % 9.6 % (Benefit from) provision for income taxes (e)
($9.5 ) $ 216.9 $ 44.3 $ 46.6
Equity method investment net losses
($0.2 ) --- ($0.2
) --- Net income (loss)
$ 97.1 ($59.6
) 263 % 5.5 % (3.4
%) $ 132.6 $ 119.7 11 % 7.5 % 6.9 % Net income (loss)
per common share, assuming dilution
$ 1.11
($0.66 ) 268 % $ 1.52 $ 1.33 14 %
Free Cash Flow (f) $ 168.7 $ 165.7
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 fourth quarter of 2018 includes pension plan
settlements of $86.3. (e) In the fourth quarter of 2018, we
finalized our provisional estimate as defined under SEC Staff
Accounting Bulletin No. 118 related to the U.S. Tax Cuts and Jobs
Act ("TCJA") of 2017. (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 sales (purchases) of investments and proceeds from
insurance. Free cash flow is also adjusted for the cash
contributions related to the termination of our U.S. pension
plan.
Full Year Financial Summary - Preliminary,
unaudited (in millions, except % and per share amounts)
% Change
vs. P/Y Ex. 2018
2017 Reported
Currency (a) Organic (b)
Net sales, by segment: Label and Graphic Materials
$
4,851.1 $ 4,511.7 7.5 % 5.7 %
5.5 % Retail Branding and Information Solutions
1,613.2
1,511.2 6.7 % 6.9 % 6.9 % Industrial and
Healthcare Materials
694.7
590.9 17.6 % 16.1 % 1.4 % Total net
sales
$ 7,159.0 $ 6,613.8 8.2
% 6.9 % 5.5 %
As Reported (GAAP) Adjusted Non-GAAP
(c) % % of
Sales % %
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
$ 568.2 $
577.4 11.7 % 12.8 % $ 630.0 $
591.9 13.0 % 13.1 % Retail Branding and Information Solutions
170.4 126.7 10.6 % 8.4 %
181.8 144.8 11.3 % 9.6 % Industrial and Healthcare Materials
62.9 52.6 9.1 % 8.9 %
61.9 56.3 8.9 % 9.5 % Corporate expense
(83.4
) (86.2 ) (85.7 )
(86.0 )
Total operating income / operating margins
before interest, other non-operating expense, and taxes
$ 718.1 $ 670.5 7 %
10.0 % 10.1 % $ 788.0 $ 707.0 11 % 11.0
% 10.7 % Interest expense
$ 58.5 $
63.0 $ 58.5 $ 63.0 Other non-operating expense (d)
$ 104.8 $ 18.0 $ 11.1 $ 18.0
Income before taxes
$ 554.8 $ 589.5
(6 %) 7.7 % 8.9 % $ 718.4
$ 626.0 15 % 10.0 % 9.5 % Provision for income taxes (e)
$ 85.4 $ 307.7 $ 179.6 $ 175.3
Equity method investment net losses
($2.0 ) --- ($2.0
) --- Net income
$ 467.4 $ 281.8
66 % 6.5 % 4.3 % $ 536.8
$ 450.7 19 % 7.5 % 6.8 % Net income per common share,
assuming dilution
$ 5.28 $ 3.13
69 % $ 6.06 $ 5.00 21 % Free Cash Flow
(f) $ 429.2 $ 421.7 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 2018 includes pension plan settlements of $93.7.
(e) In the fourth quarter of 2018, we finalized our
provisional estimate as defined under SEC Staff Accounting Bulletin
No. 118 related to the U.S. Tax Cuts and Jobs Act ("TCJA") of 2017.
(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 sales (purchases) of investments and proceeds from
insurance. Free cash flow is also adjusted for the cash
contributions 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 Twelve
Months Ended Dec. 29, 2018 Dec. 30, 2017
Dec. 29, 2018 Dec. 30, 2017
Net sales $
1,768.7 $ 1,735.3 $ 7,159.0 $ 6,613.8 Cost of products sold
1,297.2 1,269.7 5,243.5 4,801.6
Gross profit 471.5 465.6 1,915.5
1,812.2 Marketing, general and administrative expense 274.5
281.1 1,127.5 1,105.2 Other expense, net(1) 3.0 9.0 69.9
36.5 Interest expense 16.3 13.3 58.5 63.0 Other
non-operating expense(2) 89.9 4.9 104.8 18.0
Income before
taxes 87.8 157.3 554.8 589.5 (Benefit from) provision for
income taxes(3) (9.5 ) 216.9 85.4 307.7 Equity method
investment net losses (0.2 ) --- (2.0 ) ---
Net income
(loss) $ 97.1 $ (59.6 ) $ 467.4 $ 281.8
Per share amounts:
Net income (loss) per common share, assuming dilution $ 1.11
$ (0.66 ) $ 5.28 $ 3.13
Weighted average number of common shares
outstanding, assuming dilution
87.2
89.9 88.6 90.1
(1) "Other expense, net" for the fourth
quarter of 2018 includes severance and related costs of $7 and
asset impairment charges of $1, partially offset by reversal of
acquisition-related contingent consideration of $5. "Other
expense, net" for the fourth quarter of 2017 includes severance and
related costs of $9.5, lease cancellation charges of $.1, and
transaction costs of $1.5, partially offset by net gain on sales of
assets of $2.1. "Other expense, net" for fiscal year 2018
includes severance and related costs of $63, asset impairment and
lease cancellation charges of $10.7, Argentine peso remeasurement
transition loss of $3.4, and other restructuring-related charge of
$.5, partially offset by reversal of acquisition-related contingent
consideration of $5, and net gain on sales of assets of $2.7.
"Other expense, net" for fiscal year 2017 includes severance
and related costs of $31.2, asset impairment and lease cancellation
charges of $2.2, and transaction costs of $5.2, partially offset by
net gain on sales of assets of $2.1. (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 the fourth quarter and fiscal year 2018
includes pension plan settlements of $86.3 and $93.7, respectively.
(3) In the fourth quarter of 2018, we finalized our
provisional estimate as defined under SEC Staff Accounting Bulletin
No. 118 related to the U.S. Tax Cuts and Jobs Act ("TCJA") of 2017.
A-2
AVERY DENNISON
CORPORATION PRELIMINARY CONDENSED CONSOLIDATED BALANCE
SHEETS (In millions)
(UNAUDITED) ASSETS
Dec. 29, 2018
Dec. 30, 2017
Current assets: Cash and cash equivalents $ 232.0 $
224.4 Trade accounts receivable, net 1,189.7 1,180.3 Inventories,
net 651.4 609.6 Assets held for sale 3.6 6.3 Other current assets
221.3 217.3 Total current assets 2,298.0 2,237.9
Property, plant and equipment, net 1,137.4 1,097.9 Goodwill
and other intangibles resulting from business acquisitions, net
1,085.8 1,151.4 Non-current deferred income taxes 205.3 196.3 Other
assets 451.0 453.4 $ 5,177.5 $ 5,136.9
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Short-term borrowings and current
portion of long-term debt and capital leases $ 194.6 $ 265.4
Accounts payable 1,030.5 1,007.2 Other current liabilities 768.9
699.2 Total current liabilities 1,994.0 1,971.8
Long-term debt and capital leases 1,771.6 1,316.3 Other
long-term liabilities 456.8 802.6 Shareholders' equity: Common
stock 124.1 124.1 Capital in excess of par value 872.0 862.6
Retained earnings 2,864.9 2,596.7 Treasury stock at cost (2,223.9 )
(1,856.7 ) Accumulated other comprehensive loss (682.0 ) (680.5 )
Total shareholders' equity 955.1 1,046.2
$ 5,177.5 $ 5,136.9
A-3
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
(UNAUDITED) Twelve Months Ended
Dec. 29, 2018
Dec. 30, 2017
Operating Activities: Net income
$ 467.4 $ 281.8 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation 141.5
126.6 Amortization 39.5 52.1 Provision for doubtful
accounts and sales returns 45.6 37.6 Net losses (gains) from
impairments, sales of assets, and investment settlements 6.8 (0.4 )
Stock-based compensation 34.3 30.2 Loss from
settlement of pension obligations 93.7 --- Deferred income
taxes and other non-cash taxes (32.7 ) 151.6 Other non-cash
expense and loss 53.6 53.9 Changes in assets and liabilities
and other adjustments (391.8 ) (87.7 ) Net cash
provided by operating activities 457.9 645.7
Investing Activities: Purchases of property, plant
and equipment (226.7 ) (190.5 ) Purchases of software and
other deferred charges (29.9 ) (35.6 ) Proceeds from sales
of property, plant and equipment 9.4 6.0 Sales (purchases)
of investments and proceeds from insurance, net 18.5 (3.9 )
Payments for acquisitions, net of cash acquired, and investments in
businesses (3.8 ) (319.3 ) Net cash used in investing
activities (232.5 ) (543.3 )
Financing
Activities: Net decrease in borrowings (maturities of
three months or less) (77.6 ) (89.2 ) Additional long-term
borrowings 493.3 542.9 Repayments of long-term debt and
capital leases (6.4 ) (253.8 ) Dividends paid (175.0 )
(155.5 ) Share repurchases (392.9 ) (129.7 ) Proceeds
from exercises of stock options, net 0.9 22.0 Tax
withholding for stock-based compensation (33.1 ) (20.6 )
Payments of contingent consideration (17.3 ) --- Net
cash used in financing activities (208.1 ) (83.9 )
Effect of foreign currency translation on cash balances (9.7 ) 10.8
Increase in cash and cash equivalents 7.6 29.3
Cash and cash equivalents, beginning of year 224.4 195.1
Cash and cash equivalents, end of year $ 232.0 $ 224.4
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 the 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 or losses from curtailment or 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 sales change ex. currency, excluding the estimated
impact of 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 change from the ongoing
activities of our businesses and enhance their 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 expense, net. Adjusted
operating margin refers to adjusted operating income as a
percentage of sales. Adjusted tax rate refers to the
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 completion of our 2017 TCJA provisional
estimate, impacts related to our U.S. pension plan termination, and
the effects of discrete 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
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 sales (purchases) of investments and proceeds from
insurance. Free cash flow is also adjusted for the cash
contributions 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
Twelve Months Ended Dec. 29, 2018 Dec. 30,
2017 Dec. 29, 2018 Dec. 30, 2017
Reconciliation from GAAP to Non-GAAP operating margins:
Net sales $ 1,768.7 $ 1,735.3 $ 7,159.0 $ 6,613.8
Income before taxes $ 87.8 $ 157.3 $ 554.8 $ 589.5
Income before taxes as a percentage of sales 5.0 % 9.1 % 7.7
% 8.9 % Adjustments: Interest expense $ 16.3 $ 13.3 $
58.5 $ 63.0 Other non-operating expense 89.9 4.9 104.8 18.0
Operating income before interest expense, other
non-operating expense, and taxes $ 194.0 $ 175.5 $ 718.1 $ 670.5
Operating margins 11.0 % 10.1 % 10.0 % 10.1 %
Income before taxes $ 87.8 $ 157.3 $ 554.8 $ 589.5
Adjustments: Restructuring charges: Severance and related costs 7.0
9.5 63.0 31.2 Asset impairment and lease cancellation charges 1.0
0.1 10.7 2.2 Argentine peso remeasurement transition loss --- ---
3.4 --- Other restructuring-related charge --- --- 0.5 ---
Transaction costs --- 1.5 --- 5.2 Reversal of acquisition-related
contingent consideration (5.0 ) --- (5.0 ) --- Net gain on sales of
assets --- (2.1 ) (2.7 ) (2.1 ) Interest expense 16.3 13.3 58.5
63.0 Other non-operating expense 89.9 4.9 104.8 18.0
Adjusted operating income before interest
expense, other non-operating expense, and taxes (non-GAAP)
$ 197.0 $ 184.5 $ 788.0 $ 707.0 Adjusted operating
margins (non-GAAP) 11.1 % 10.6 % 11.0 % 10.7 %
Reconciliation from GAAP to Non-GAAP net income: As
reported net income (loss) $ 97.1 $ (59.6 ) $ 467.4 $ 281.8
Adjustments: Restructuring charges and other items(1) 3.0 9.0 69.9
36.5 Pension plan settlements 86.3 --- 93.7 --- Tax benefit from
pension plan contributions(2) (3) --- --- (31.0 ) --- Tax benefit
from pension plan settlements(4) (19.3 ) --- (19.3 ) --- Tax
benefit from discrete foreign tax planning action (31.0 ) --- (31.0
) --- Tax effect on restructuring charges and other items and
impact of adjusted tax rate 0.2 27.7 (9.2 ) (10.2 )
TCJA provisional estimate(3)(4)
(3.7 ) 172.0 (3.7 ) 172.0
Impact of previously planned repatriation
of foreign earnings for Q4 2017
--- (29.4 ) --- (29.4 ) Adjusted net income
(non-GAAP) $ 132.6 $ 119.7 $ 536.8 $ 450.7
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 Twelve
Months Ended Dec. 29, 2018 Dec. 30, 2017
Dec. 29, 2018 Dec. 30, 2017
Reconciliation from GAAP to Non-GAAP net income per common
share: As reported net income (loss) per common share,
assuming dilution $ 1.11 $ (0.66 ) $ 5.28 $ 3.13 Adjustments
per common share, net of tax: Restructuring charges and
other items(1) 0.04 0.41 0.68 0.29 Pension plan settlements 0.77
--- 0.84 --- Tax benefit from discrete foreign tax planning action
(0.36 ) --- (0.35 ) --- TCJA provisional estimate (0.04 ) 1.91
(0.39 ) 1.91 Impact of previously planned repatriation of foreign
earnings for Q4 2017 --- (0.33 ) --- (0.33 )
Adjusted net income per common share, assuming dilution (non-GAAP)
$ 1.52 $ 1.33 $ 6.06 $ 5.00 Weighted average number
of common shares outstanding, assuming dilution 87.2 89.9 88.6 90.1
The adjusted tax rate was 25% for the
three and twelve months ended Dec. 29, 2018, and 28% for the three
and twelve months ended Dec. 30, 2017.
(1)
Includes restructuring charges, Argentine
peso remeasurement transition loss, other restructuring-related
charge, transaction costs, reversal of acquisition-related
contingent consideration, and net gain on sales of assets.
(2)
Tax benefits from the deduction of the
third quarter U.S. pension contributions on the company's 2017 U.S.
income tax return.
(3)
In the fourth quarter of 2018, we
finalized our provisional estimate as defined under SEC Staff
Accounting Bulletin No. 118 related to the U.S. Tax Cuts and Jobs
Act ("TCJA") of 2017.
(4)
Amounts in the fourth quarter of 2018
include the combined third and fourth quarter impacts of ($1.2) and
($18.1) for tax benefits from pension plan settlements, and ($4.7)
and $1 for TCJA provisional estimate.
(UNAUDITED) Three Months Ended
Twelve Months Ended Dec. 29, 2018 Dec. 30,
2017 Dec. 29, 2018 Dec. 30, 2017
Reconciliation of free cash flow: Net cash
provided by operating activities $ 270.2 $ 255.8 $ 457.9 $ 645.7
Purchases of property, plant and equipment (94.0 ) (79.1 )
(226.7 ) (190.5 ) Purchases of software and other deferred
charges (8.4 ) (12.1 ) (29.9 ) (35.6 ) Proceeds from sales
of property, plant and equipment --- 3.0 9.4 6.0 Sales
(purchases) of investments and proceeds from insurance, net 0.9
(1.9 ) 18.5 (3.9 ) Pension plan contribution for plan
termination --- --- 200.0 --- Free cash flow
(non-GAAP) $ 168.7 $ 165.7 $ 429.2 $ 421.7
A-6
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Fourth Quarter Ended NET SALES OPERATING INCOME
(LOSS) OPERATING MARGINS 2018 2017
2018(1)
2017(2)
2018 2017 Label and Graphic Materials $
1,181.4 $ 1,161.7 $ 150.1 $ 140.8 12.7 % 12.1 % Retail Branding and
Information Solutions 412.1 395.5 48.0 43.8 11.6 % 11.1 %
Industrial and Healthcare Materials 175.2 178.1 18.0 13.5 10.3 %
7.6 % Corporate Expense N/A N/A
(22.1 ) (22.6 ) N/A
N/A TOTAL FROM OPERATIONS $
1,768.7 $ 1,735.3 $ 194.0
$ 175.5 11.0 % 10.1 % (1)
Operating income for the fourth quarter of 2018 includes severance
and related costs of $7 and asset impairment charges of $1,
partially offset by reversal of acquisition-related contingent
consideration of $5. Of the total $3, the Label and Graphic
Materials segment recorded $1.9, the Retail Branding and
Information Solutions segment recorded $2.3, and the Industrial and
Healthcare Materials segment recorded ($1.2). (2) Operating
income for the fourth quarter of 2017 includes severance and
related costs of $9.5, lease cancellation charges of $.1, and
transaction costs of $1.5, partially offset by net gain on sales of
assets of $2.1. Of the total $9, the Label and Graphic Materials
segment recorded $4.1, the Retail Branding and Information
Solutions segment recorded $4.1, the Industrial and Healthcare
Materials segment recorded $.6, and Corporate recorded $.2.
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY
INFORMATION
Fourth Quarter Ended
OPERATING INCOME OPERATING MARGINS 2018 2017
2018 2017
Label and Graphic
Materials
Operating income and margins, as reported $ 150.1 $ 140.8 12.7 %
12.1 % Adjustments: Restructuring charges: Severance and related
costs 1.6 4.9 0.2 % 0.4 % Asset impairment charges 0.3 --- --- ---
Gain on sale of assets ---
(0.8 ) --- --- Adjusted
operating income and margins (non-GAAP) $ 152.0
$ 144.9 12.9 % 12.5 %
Retail Branding
and Information Solutions
Operating income and margins, as reported $ 48.0 $ 43.8 11.6 % 11.1
% Adjustments: Restructuring charges: Severance and related costs
1.7 4.6 0.4 % 1.2 % Asset impairment and lease cancellation charges
0.6 0.1 0.2 % --- Transaction costs related to sale of product line
--- 0.9 --- 0.2 % Gain on sales of assets ---
(1.5 ) --- (0.4 %)
Adjusted operating income and margins (non-GAAP) $ 50.3
$ 47.9 12.2 % 12.1 %
Industrial and
Healthcare Materials
Operating income and margins, as reported $ 18.0 $ 13.5 10.3 % 7.6
% Adjustments: Restructuring charges: Severance and related costs
3.7 --- 2.1 % --- Asset impairment charges 0.1 --- 0.1 % ---
Reversal of acquisition-related contingent consideration (5.0 ) ---
(2.9 %) --- Transaction costs ---
0.6 --- 0.3 % Adjusted
operating income and margins (non-GAAP) $ 16.8
$ 14.1 9.6 % 7.9 %
A-7
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Twelve Months Year-to-Date NET SALES OPERATING INCOME
(LOSS) OPERATING MARGINS 2018 2017
2018(1)
2017(2)
2018 2017 Label and Graphic Materials $
4,851.1 $ 4,511.7 $ 568.2 $ 577.4 11.7 % 12.8 % Retail Branding and
Information Solutions 1,613.2 1,511.2 170.4 126.7 10.6 % 8.4 %
Industrial and Healthcare Materials 694.7 590.9 62.9 52.6 9.1 % 8.9
% Corporate Expense N/A N/A
(83.4 ) (86.2 ) N/A
N/A TOTAL FROM OPERATIONS $
7,159.0 $ 6,613.8 $ 718.1
$ 670.5 10.0 % 10.1 % (1)
Operating income for fiscal year 2018 includes severance and
related costs of $63, asset impairment and lease cancellation
charges of $10.7, Argentine peso remeasurement transition loss of
$3.4, and other restructuring-related charge of $.5, partially
offset by reversal of acquisition-related contingent consideration
of $5, and net gain on sales of assets of $2.7. Of the total $69.9,
the Label and Graphic Materials segment recorded $61.8, the Retail
Branding and Information Solutions segment recorded $11.4, the
Industrial and Healthcare Materials segment recorded ($1), and
Corporate recorded ($2.3). (2) Operating income for fiscal
year 2017 includes severance and related costs of $31.2, asset
impairment and lease cancellation charges of $2.2, and transaction
costs of $5.2, partially offset by net gain on sales of assets of
$2.1. Of the total $36.5, the Label and Graphic Materials segment
recorded $14.5, the Retail Branding and Information Solutions
segment recorded $18.1, the Industrial and Healthcare Materials
segment recorded $3.7, and Corporate recorded $.2.
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY
INFORMATION
Twelve Months
Year-to-Date OPERATING INCOME OPERATING MARGINS 2018
2017 2018 2017
Label and Graphic
Materials
Operating income and margins, as reported $ 568.2 $ 577.4 11.7 %
12.8 % Adjustments: Restructuring charges: Severance and related
costs 50.3 14.5 1.0 % 0.3 % Asset impairment and lease cancellation
charges 7.5 0.3 0.2 % --- Argentine peso remeasurement transition
loss 3.4 --- 0.1 % --- Other restructuring-related charge 0.5 ---
--- --- Loss (gain) on sales of assets 0.1 (0.8 ) --- ---
Transaction costs --- 0.5
--- --- Adjusted
operating income and margins (non-GAAP) $ 630.0
$ 591.9 13.0 % 13.1 %
Retail Branding
and Information Solutions
Operating income and margins, as reported $ 170.4 $ 126.7 10.6 %
8.4 % Adjustments: Restructuring charges: Severance and related
costs 8.8 16.5 0.5 % 1.1 % Asset impairment and lease cancellation
charges 3.1 1.9 0.2 % 0.1 % Gain on sales of assets (0.5 ) (1.5 )
--- (0.1 %) Transaction costs related to sale of product line
--- 1.2 ---
0.1 % Adjusted operating income and margins
(non-GAAP) $ 181.8 $ 144.8 11.3
% 9.6 %
Industrial and
Healthcare Materials
Operating income and margins, as reported $ 62.9 $ 52.6 9.1 % 8.9 %
Adjustments: Restructuring charges: Severance and related costs 3.9
0.2 0.5 % --- Asset impairment charges 0.1 --- --- --- Reversal of
acquisition-related contingent consideration (5.0 ) --- (0.7 %) ---
Transaction costs --- 3.5
--- 0.6 % Adjusted operating
income and margins (non-GAAP) $ 61.9 $
56.3 8.9 % 9.5 %
A-8
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION (UNAUDITED)
Fourth 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 1.9 % 1.7 % 4.2 % (1.6 %) Foreign currency translation
2.9 % 3.0 % 2.7 %
2.4 % Sales change ex. currency (non-GAAP)(1) 4.8 %
4.7 % 6.9 % 0.7 % Acquisitions ---
--- ---
--- Organic sales change
(non-GAAP) 4.8 % 4.7 %
6.9 % 0.7 %
Full Year 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 8.2 % 7.5 % 6.7 % 17.6 % Foreign currency translation
(1.4 %) (1.9 %) 0.2 %
(1.5 %) Sales change ex. currency
(non-GAAP)(1) 6.9 % 5.7 % 6.9 % 16.1 % Acquisitions
(1.4 %) (0.2 %)
--- (14.7 %) Organic sales
change (non-GAAP) 5.5 %
5.5 % 6.9 % 1.4 %
(1) Totals may not sum due to rounding
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190130005210/en/
Media Relations:Rob Six, (626)
304-2361rob.six@averydennison.com
Investor Relations:Cindy Guenther, (626)
304-2204cynthia.guenther@averydennison.com
Avery Dennison (NYSE:AVY)
Historical Stock Chart
From Jun 2024 to Jul 2024
Avery Dennison (NYSE:AVY)
Historical Stock Chart
From Jul 2023 to Jul 2024