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Aug. 3, 2021, 4:24 p.m. EDT

10-Q: AVERY DENNISON CORP

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, provides management's views on our financial condition and results of operations and should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and related notes. NON-GAAP FINANCIAL MEASURES 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 assessments 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, positive or negative, of certain items (e.g., restructuring charges, outcomes of certain legal proceedings, 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, gains or losses on investments and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing. We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period and full year, as applicable. We use the non-GAAP financial measures described below in this MD&A.

? Sales change ex. currency

? Organic sales change

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.

? Free cash flow

? Operational working capital as a percentage of annualized current quarter net sales

Table of Contents

OVERVIEW AND OUTLOOK







        COVID-19
        Update
        Uncertainty surrounding the global health crisis remains elevated as many parts
        of the world are experiencing an increase in cases related to the
        coronavirus/COVID-19
        pandemic
        ("COVID-19"),
        with the greatest impact to the company in South Asia, particularly in our
        Retail Branding and Information Solutions ("RBIS") reportable segment. The
        safety and well-being of employees has been and continues to be our top
        priority. We have taken steps to ensure employee safety, quickly implementing
        world-class safety protocols and continuing to adapt our guidelines as the
        pandemic continues to evolve. Where appropriate, we may take further actions
        required by international, federal, state or local authorities or that we
        determine are in the best interests of our employees, customers, shareholders
        and communities.
        As supply chains remain constrained, we continue to actively manage through a
        dynamic supply and demand environment. Demand across the majority of businesses
        and regions remains strong, while raw materials, freight and labor availability
        continue to be constrained. Inflation remains persistent and pricing and
        material re-engineering actions are being implemented to offset higher costs. We
        are leveraging our global scale and working closely with customers and suppliers
        to minimize disruptions and continue to demonstrate agility and preparedness
        through robust scenario planning.
        Overall, COVID-19 had a notably negative impact on our consolidated financial
        results in 2020, most significantly in our RBIS and Industrial and Healthcare
        Materials ("IHM") reportable segments. Our operations largely recovered from the
        prior period impact of COVID-19, with this recovery reflected in our higher
        volumes across our businesses in the second quarter of 2021 compared to the same
        period last year.
        Net Sales
        The factors impacting reported net sales change, as compared to the prior-year
        period, are shown in the table below.
        








                                              Three Months Ended        Six Months Ended
                                                    July 3, 2021            July 3, 2021
        Reported sales change                                 38 %                    28 %
        Foreign currency translation                          (8 )                    (6 )
        Extra week impact                                      -                      (2 )
        Sales change ex. currency
        (1)                                                   29                      19
        Acquisitions and product line exit                    (1 )                    (2 )
        Organic sales change
        (1)                                                   28 %                    18 %
        


(1) Totals may not sum due to rounding

In the three months and six months ended July 3, 2021, net sales increased on an organic basis compared to the same periods in the prior year primarily due to higher volume/mix.

? Higher volume/mix

? Benefits from productivity initiatives, including savings from restructuring actions, net of transition costs

? Benefit from the Brazil indirect tax credit

? Favorable currency translation

? Lower allowances for credit losses

Offsetting factors:

? Higher employee-related costs

? The impact of prior year temporary cost reduction actions

? Net impact of pricing and raw material input costs

? Contingent liability related to patent infringement jury verdict

Acquisitions

Table of Contents

The acquisitions of ZippyYum and JDC are referred to collectively as the "2021 Acquisitions."







        COVID-19.
        Restructuring charges were included in "Other expense (income), net" in the
        unaudited Condensed Consolidated Statements of Income. Refer to Note 6, "Cost
        Reduction Actions," to the unaudited Condensed Consolidated Financial Statements
        for more information.
        Cash Flow
        








                                                                            Six Months Ended
        (In millions)                                                July 3, 2021          June 27, 2020
        Net cash provided by operating activities               $           476.8      $           184.0
        Purchases of property, plant and equipment                          (83.8 )                (63.9 )
        Purchases of software and other deferred charges                     (6.4 )                (11.0 )
        Proceeds from sales of property, plant and equipment                  1.0                     .1
        Proceeds from insurance and sales (purchases) of
        investments, net                                                       .4                    (.4 )
        Free cash flow                                          $           388.0      $           108.8
        


During the first six months of 2021, net cash provided by operating activities increased compared to the same period last year primarily due to higher net income and improved operational working capital, partially offset by higher income tax payments, net of refunds. During the first six months of 2021, free cash flow increased compared to the same period last year primarily due to an increase in net cash provided by operating activities partially offset by an increase in purchases of property, plant and equipment. Outlook

? We expect net sales to increase by approximately 16% to 18%, including an increase of approximately 3.5% from the effect of foreign currency translation and a decrease of approximately 1.5% related to the calendar shift resulting from the extra week in 2020.

? We expect closed acquisitions to provide a benefit to operating income.

? Based on recent exchange rates, we expect foreign currency translation to increase our operating income by approximately $35 million.

? We expect incremental savings from restructuring actions, net of transition costs, to be more than $60 million.

? We expect the pace of our investments in our businesses to accelerate throughout the year.

? We expect our full year effective tax rate to be in the mid-twenty

? We expect net cash provided by operating activities and free cash flow to increase.

Table of Contents







                                                              Avery Dennison Corporation
        ANALYSIS OF RESULTS OF OPERATIONS FOR THE SECOND QUARTER
        Income Before Taxes
                                                                Three Months Ended
        (In millions, except percentages)                 July 3, 2021        June 27, 2020
        Net sales                                       $      2,102.0      $       1,528.5
        Cost of products sold                                  1,525.7              1,145.6
        Gross profit                                             576.3                382.9
        Marketing, general and administrative expense            307.0                219.4
        Other expense (income), net                                (.6 )               40.0
        Interest expense                                          16.0                 20.0
        Other
        non-operating
        expense (income), net                                     (1.4 )                 .2
        Income before taxes                             $        255.3      $         103.3
        Gross profit margin                                       27.4 %               25.1 %
        


Gross Profit Margin







        Other Expense (Income), Net
                                                                            Three Months Ended
        (In millions)                                               July 3, 2021          June 27, 2020
        Other expense (income), net, by type
        Restructuring charges:
        Severance and related costs                                $         1.6        $          37.5
        Asset impairment charges and lease cancellation costs                 .1                    1.8
        Other items:
        Loss on sale of assets, net                                           .2                      -
        Outcomes of legal proceedings, net                                  (2.5 )                    -
        Transaction and related costs                                          -                     .7
        Gain on sale of product line                                           -                      -
        Other expense (income), net                                $         (.6 )      $          40.0
        


Refer to Note 6, "Cost Reduction Actions," to the unaudited Condensed Consolidated Financial Statements for more information regarding restructuring charges.

Table of Contents







                                                              Avery Dennison Corporation
        Net Income and Earnings per Share
                                                                          Three Months Ended
        (In millions, except per share amounts and percentages)    July 3, 2021         June 27, 2020
        Income before taxes                                       $       255.3       $         103.3
        Provision for (benefit from) income taxes                          70.4                  22.2
        Equity method investment (losses) gains                            (1.1 )                (1.4 )
        Net income                                                $       183.8       $          79.7
        Per share amounts:
        Net income per common share                               $        2.21       $           .96
        Net income per common share, assuming dilution                     2.19                   .95
        Effective tax rate                                                 27.6 %                21.5 %
        


Provision for (Benefit from) Income Taxes Our effective tax rate for the three months ended July 3, 2021 was 27.6% compared to 21.5% in the same period last year. The lower rate for the same period last year primarily reflected a net discrete tax benefit from decreases in certain tax reserves, including associated interest and penalties, as a result of closing tax years and the effective settlement of certain foreign tax audits. Refer to Note 8, "Taxes Based on Income," to the unaudited Condensed Consolidated Financial Statements for more information.







        non-operating
        expense (income), net.
        Label and Graphic Materials
                                                                          Three Months Ended
        (In millions)                                               July 3, 2021        June 27, 2020
        Net sales including intersegment sales                    $      1,400.9      $       1,114.4
        Less intersegment sales                                            (24.7 )              (12.9 )
        Net sales                                                 $      1,376.2      $       1,101.5
        Operating income
        (1)                                                                228.1                137.5
        (1)
        Included charges associated with restructuring actions
        in both years and outcomes of legal proceedings in
        2021.                                                     $        (28.5 )    $          25.8
        


Table of Contents







                                                              Avery Dennison Corporation
        Net Sales
        The factors impacting reported net sales change are shown in the table below.
                                              Three Months Ended
                                                    July 3, 2021
        Reported sales change                                 25 %
        Foreign currency translation                          (8 )
        Sales change ex. currency
        (1)                                                   17
        Acquisitions and product line exit                    (1 )
        Organic sales change
        (1)                                                   16 %
        (1)
        Totals may not sum due to rounding
        








        Retail Branding and Information Solutions
                                                                           Three Months Ended
        (In millions)                                               July 3, 2021        June 27, 2020
        Net sales including intersegment sales                     $       538.7      $         300.5
        Less intersegment sales                                             (9.4 )               (5.6 )
        Net sales                                                  $       529.3      $         294.9
        Operating income (loss)
        (1)                                                                 42.1               (10.7)
        (1)
        Included charges associated with restructuring actions
        in both years, loss on sale of asset and outcomes of
        legal proceedings in 2021, and transaction and related
        costs in 2020.                                             $        27.5      $          12.9
        








        Net Sales
        The factors impacting reported net sales change are shown in the table below.
                                        Three Months Ended
                                              July 3, 2021
        Reported sales change                           80 %
        Foreign currency translation                    (7 )
        Sales change ex. currency
        (1)                                             73
        Acquisitions                                     -
        Organic sales change
        (1)                                             72 %
        


(1) Totals may not sum due to rounding

In the second quarter of 2021, company-wide, net sales of Intelligent Labels solutions increased on an organic basis by approximately 65%. Net sales in the base business increased significantly in the second quarter, primarily due to the recovery from the prior period impact of COVID-19.

Table of Contents







                                                              Avery Dennison Corporation
        Operating Income
        Operating income increased in the second quarter of 2021 compared to the same
        period last year primarily due to higher volume, lower restructuring charges and
        benefits from productivity initiatives, including savings from restructuring
        actions, net of transition costs, partially offset by outcomes of legal
        proceedings, the impact of prior year temporary cost reduction actions, higher
        employee-related costs and growth investments.
        Industrial and Healthcare Materials
                                                                          Three Months Ended
        (In millions)                                              July 3, 2021         June 27, 2020
        Net sales including intersegment sales                    $       198.7       $         133.3
        Less intersegment sales                                            (2.2 )                (1.2 )
        Net sales                                                 $       196.5       $         132.1
        Operating income
        (1)                                                                22.5                   7.5
        (1)
        Included charges associated with restructuring actions
        in both years.                                            $          .5       $           1.5
        








        Net Sales
        The factors impacting reported net sales change are shown in the table below.
                                        Three Months Ended
                                              July 3, 2021
        Reported sales change                           49 %
        Foreign currency translation                    (9 )
        Sales change ex. currency
        (1)                                             39
        Acquisitions                                    (6 )
        Organic sales change
        (1)                                             33 %
        (1)
        Totals may not sum due to rounding
        


Table of Contents







                                                              Avery Dennison Corporation
        ANALYSIS OF RESULTS OF OPERATIONS FOR THE SIX MONTHS
        YEAR-TO-DATE
        Income Before Taxes
                                                                 Six Months Ended
        (In millions, except percentages)                 July 3, 2021        June 27, 2020
        Net sales                                       $      4,153.3      $       3,251.5
        Cost of products sold                                  2,980.0              2,383.5
        Gross profit                                           1,173.3                868.0
        Marketing, general and administrative expense            619.3                500.4
        . . .
        


Aug 03, 2021

COMTEX_390872901/2041/2021-08-03T16:24:20

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