Avery Dennison Announces Fourth Quarter and Full Year 2020 Results
02/03/2021 - 06:45 AM
Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its fourth quarter and year ended January 2, 2021 and provided an update related to the impact of the COVID-19 pandemic on the company. 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 delivered another year of strong earnings growth in 2020,” said Mitch Butier, Chairman, President and CEO. “In the face of an unprecedented series of crises, our team demonstrated remarkable preparedness and incredible agility in ensuring the health and welfare of our employees, delivering for our customers, supporting our communities, and minimizing the impact of the recession for our shareholders.
“We were able to protect, even expand, margins, despite pandemic-related market declines particularly in the second quarter,” added Butier. “Underlying label demand in LGM, our largest business, remained strong throughout the downturn, while volume trends improved sequentially in RBIS and IHM in the second half. RFID grew significantly due to continued strong organic growth and the acquisition of Smartrac.
“As we enter 2021, we remain confident in our ability to continue to make progress toward our long-term goals, including consistent delivery of GDP+ growth and top-quartile return on capital,” added Butier.
“We continue to prove our resilience across business cycles,” said Butier. “I want to thank our entire team for their ongoing efforts to keep one another safe while continuing to deliver for all our stakeholders during this challenging period.”
COVID-19 Update
The safety and well-being of employees has been and will continue to be the company’s top priority during this global health crisis. The company has taken steps to both ensure employee safety, as well as help mitigate the financial impact to employees resulting from mandated facility closures and necessary layoffs in early 2020. In addition, the company recently provided one-time payments to frontline workers to express gratitude for their effort and dedication throughout this difficult time.
Additionally, the company has increased community engagement during the crisis, including electing to make a $10 million incremental contribution for charitable causes in the fourth quarter.
Throughout the pandemic, the company has continued to work closely with customers to continue to deliver industry-leading products and services. Operationally, all manufacturing sites remained open during the second half of the year. Throughout the health crisis, disruptions to the company’s supply chain have been negligible.
Balance Sheet, Liquidity, and Capital Deployment
The company’s balance sheet remains strong, with ample liquidity. Net debt to adjusted EBITDA (non-GAAP) was 1.7 as of the end of the fourth quarter, below our long-term target of 2.3 to 2.6.
The company’s long-term priorities for capital allocation support its primary objectives of delivering faster growth in high value categories alongside profitable growth of its base businesses. These priorities are unchanged in the current environment.
The company continues to protect its investments in high value categories, particularly RFID, and increased its pace of capital spending in the fourth quarter compared to previous expectations. Total capital spending for the year was $219 million .
The company closed two strategic acquisitions during the year, ACPO in the fourth quarter for $88 million and Smartrac in the first quarter for $255 million .
Additionally, for the fourth quarter and full year 2020, the company repurchased 0.4 and 0.8 million shares, respectively, at an aggregate cost of $52 million and $104 million , respectively. Net of dilution from long-term incentive awards, the company’s share count at the end of the year was down by 0.9 million compared to the same time last year. In 2020, the company returned $301 million in cash to shareholders through a combination of share repurchases and dividends.
Fourth Quarter 2020 Results
Net sales were $1.99 billion , up 12.3% . The extra week in 2020 increased sales 4.9% . Sales were up 5.2% ex. currency, and up 3.2% on an organic basis.
Reported operating margin increased 350 basis points to 13.7% . Adjusted EBITDA margin increased 180 basis points to 16.3% , while adjusted operating margin increased 160 basis points to 13.5% .
Reported net income was $2.28 per share, up 19% and adjusted net income was $2.27 per share, up 31% , both of which were above the company’s expectations.
Year-to-date free cash flow was $548 million , up 6.9% compared to last year.
Fourth Quarter 2020 Results by Segment
Label and Graphic Materials
Reported sales increased 10.1% . Sales were up 3.6% on an organic basis.
Label and Packaging Materials sales were up a mid-single digit from prior year on an organic basis.
Sales declined by a mid-single digit organically in the combined Graphics and Reflective Solutions businesses.
On an organic basis, sales were up a mid-single digit in North America and emerging markets, and roughly flat in Western Europe.
Reported operating margin increased 390 basis points to 15.9% , as the benefits of productivity, favorable volume/mix, lower restructuring charges, as well as raw material deflation, net of pricing more than offset higher employee-related costs. Adjusted operating margin increased 210 basis points to 15.4% .
Retail Branding and Information Solutions
Reported sales increased 19.0% . Sales were up 11.6% ex. currency, and up 3.1% on an organic basis, as strong organic growth in high value categories was partially offset by a low-to-mid-single digit decline in the base business, driven by overall lower apparel demand. Sales ex. currency growth also reflected contribution from the Smartrac acquisition.
Enterprise-wide sales of RFID products were up approximately 55% ex. currency with the benefit of the Smartrac acquisition, and up approximately 21% organically, driven by new programs and recovery in the value segment of the apparel market.
Reported operating margin increased 380 basis points to 15.3% , as the benefits of productivity, favorable volume, and lower restructuring charges more than offset higher employee-related costs. Adjusted operating margin increased 210 basis points to 15.7% .
Industrial and Healthcare Materials
Reported sales increased 10.8% . On an organic basis, sales increased 0.7% , reflecting a high-single digit increase in industrial categories, and a mid-single digit decline in healthcare categories.
Reported operating margin increased 520 basis points to 12.4% , as the benefits of lower restructuring charges, favorable volume/mix, and productivity more than offset the impact of higher employee-related costs. Adjusted operating margin increased 210 basis points to 12.3% .
Other
Income Taxes
The company’s reported effective tax rate was 24.6% for the fourth quarter and 24.1% for the full year. The company’s adjusted (non-GAAP) tax rate was 24.1% for the fourth quarter and full year.
The company’s 2021 adjusted tax rate is expected to be in the mid-twenty percent range, based on current tax regulations.
Cost Reduction Actions
In the fourth quarter and full year 2020, the company realized approximately $18 million and $65 million , respectively, in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $3 million and $55 million , respectively, the vast majority of which represents cash charges. In addition, the company delivered approximately $135 million in net temporary savings in 2020, the majority of which are expected to become a headwind as markets continue to recover.
Outlook
In its supplemental presentation materials, “Fourth Quarter and Full Year 2020 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2021 financial results. Based on the factors listed and other assumptions, the company expects 2021 reported earnings per share of $7.50 t o $7.90.
Excluding an estimated $0.15 per share impact of restructuring charges and other items, the company expects 2021 adjusted earnings per share of $7.65 t o $8.05.
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 2020 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.
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 more than 30,000 employees in more than 50 countries. Reported sales in 2020 were $7.0 billion . Learn more at www.averydennison.com .
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“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. We believe that the most significant risk factors that could affect our financial performance in the near-term include: (i) the impacts to our business from global economic conditions, political uncertainty, changes in environmental standards and governmental regulations, including as a result of the coronavirus/COVID-19 pandemic; (ii) competitors' actions, including pricing, expansion in key markets, and product offerings; (iii) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; and (iv) the execution and integration of acquisitions.
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: the coronavirus/COVID-19 pandemic; fluctuations in demand affecting sales to customers; worldwide and local economic and market conditions; changes in political conditions; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; changes in our markets due to competitive conditions, technological developments, laws and regulations, and customer preferences; fluctuations in the cost and availability of raw materials and energy; changes in governmental laws and regulations; the impact of competitive products and pricing; the financial condition and inventory strategies of customers; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; product and service quality; 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 or consolidations; fluctuations in interest and tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; 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; the realization of deferred tax assets; fluctuations in interest rates; compliance with our debt covenants; fluctuations in pension, insurance, and employee benefit costs; goodwill impairment; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety, anti-corruption and trade compliance; 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.
For a more detailed discussion of the more significant of these factors, see “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our 2019 Form 10-K, filed with the Securities and Exchange Commission on February 26, 2020, 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)
(14 weeks)
(13 weeks)
4Q 4Q % Sales Change vs. P/Y
2020
2019
Reported Ex. Currency Organic
(a)
(b)
Net sales, by segment:
Label and Graphic Materials
$1,294.7
$1,176.2
10.1%
3.6%
3.6%
Retail Branding and Information Solutions
508.0
426.9
19.0%
11.6%
3.1%
Industrial and Healthcare Materials
188.2
169.8
10.8%
0.7%
0.7%
Total net sales
$1,990.9
$1,772.9
12.3%
5.2%
3.2%
As Reported (GAAP) Adjusted Non-GAAP (c)
(14 weeks)
(13 weeks)
(14 weeks)
(13 weeks)
4Q 4Q % % of Sales 4Q 4Q % % of Sales
2020
2019
Change
2020
2019
2020
2019
Change
2020
2019
Operating income (loss) / operating margins before interest, other non-operating expense (income), and taxes, by segment:
Label and Graphic Materials
$205.7
$140.9
15.9%
12.0%
$199.6
$156.0
15.4%
13.3%
Retail Branding and Information Solutions
77.5
49.1
15.3%
11.5%
79.6
58.1
15.7%
13.6%
Industrial and Healthcare Materials
23.3
12.2
12.4%
7.2%
23.1
17.4
12.3%
10.2%
Corporate expense
(33.5)
(22.1)
(33.0)
(19.9)
Total operating income / operating margins before interest, other non-operating expense (income), and taxes
$273.0
$180.1
52%
13.7%
10.2%
$269.3
$211.6
27%
13.5%
11.9%
Interest expense
$15.6
$17.8
$15.6
$17.8
Other non-operating expense (income), net (d)
$2.1
($3.0)
$1.6
($0.2)
Income before taxes
$255.3
$165.3
54%
12.8%
9.3%
$252.1
$194.0
30%
12.7%
10.9%
Provision for (benefit from) income taxes
$62.9
$2.2
$60.7
$46.9
Equity method investment (losses) gains
($0.9)
($0.6)
($0.9)
($0.6)
Net income
$191.5
$162.5
18%
9.6%
9.2%
$190.5
$146.5
30%
9.6%
8.3%
Net income per common share, assuming dilution
$2.28
$1.92
19%
$2.27
$1.73
31%
Free Cash Flow (e)
$205.8
$184.9
See accompanying schedules A-4 to A-9 for reconciliations from GAAP to non-GAAP financial measures.
(a)
Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation, and, where applicable, an extra week in our fiscal year, currency adjustment for transitional reporting of highly inflationary economies and the reclassification of sales between segments. 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.
(b)
Organic sales change refers to sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures.
(c)
Excludes impact of restructuring charges and other items. Corporate expense excludes impact of severance and related costs of $.5 and $2.2 in the fourth quarters of 2020 and 2019, respectively.
(d)
As reported "Other non-operating expense (income), net" includes pension plan settlements and related charges, net of credits of $.5 and ($2.8) in the fourth quarters of 2020 and 2019, respectively.
(e)
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 insurance and sales (purchases) of investments. Free cash flow is also adjusted for, where applicable, 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)
(53 weeks)
(52 weeks)
% Sales Change vs. P/Y
2020
2019
Reported Ex. Currency Organic
(a)
(b)
Net sales, by segment:
Label and Graphic Materials
$4,715.1
$4,745.9
(0.6% )
(0.5% )
(0.5% )
Retail Branding and Information Solutions
1,630.9
1,650.3
(1.2% )
(2.3% )
(9.5% )
Industrial and Healthcare Materials
625.5
673.9
(7.2% )
(8.7% )
(8.7% )
Total net sales
$6,971.5
$7,070.1
(1.4% )
(1.7% )
(3.4% )
AVY Rankings
#1961 Ranked by Stock Gains
AVY Stock Data
Industry
Paper Bag and Coated and Treated Paper Manufacturing
Sector
Manufacturing
Tags
Process Industries, Containers/Packaging, Manufacturing, Paper Bag and Coated and Treated Paper Manufacturing
Country
US
City
Glendale
About AVY
avery dennison (nyse: avy) is a global leader in labeling and packaging materials and solutions. the company’s applications and technologies are an integral part of products used in every major market and industry. with operations in more than 50 countries and over 25,000 employees worldwide, avery dennison serves customers with insights and innovations that help make brands more inspiring and the world more intelligent.
