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Avery continues to invest in RFID & emerging markets
23
Jul '08
Avery Dennison Corporation reported second quarter 2008 results.

"A strong product line, distinct competitive advantages, and the strength of our global footprint continue to help offset the current environment of spiking raw material costs and economic slowdown in the U.S. and Europe," said Dean A. Scarborough, president and chief executive officer of Avery Dennison.

"Inflation and economic conditions were worse than expected in the quarter, and are now expected to be worse than previously anticipated during the second half of the year, diminishing our 2008 outlook. In the face of major headwinds, we are delivering strong cash flow and dividends, as we have in the past.

"Despite weak economic environments in the U.S. and Europe, demand in the Company's Pressure-sensitive Materials Segment continues to grow, particularly in emerging markets. With rapid cost inflation compressing margins, we're continuing to drive productivity improvement and implementing additional price increases.

"The integration of Paxar into our Retail Information Services Group remains on track, and is targeted to drive annual cost synergies of approximately $120 million by the end of 2009, with 85 percent of the savings realized by the end of 2008. We fully expect this business to be an outstanding performer when the slumping apparel market recovers. Our Office Products business continues to generate significant cash flow, despite market conditions.

"We're positioning the Company for growth, and have great confidence in improved results when external conditions normalize and the benefit of internal actions flow through. We continue to invest in key growth initiatives including RFID, emerging markets, and other opportunities.

"We're improving productivity while optimizing working capital. During the quarter, we increased productivity through accelerated deployment of enterprise lean sigma tools, and furthered the integration of Paxar. We also focused on working capital, resulting in strong cash flow even in a difficult environment."

Pressure-sensitive Materials Segment (PSM):
Segment revenue growth in the quarter was primarily driven by strong sales in emerging markets, with revenue in the U.S. and Europe reflecting the tough economic conditions. Revenue growth net of currency translation was 3 percent.

Margin compression primarily reflected raw material inflation ahead of price increases. The decline was partially offset by continued improvements in operational efficiency. Price increases, which started late in the first quarter, are accelerating through the balance of the year.

Retail Information Services Segment (RIS):
Segment revenue growth in the quarter is attributable to acquisitions, which were completed in June 2007 and April 2008. Adjusted for acquisitions, revenue declined 3 percent, net of currency translation.

RIS continues to build its competitive advantages of quality, customization, global footprint, and data management. The organic decline in revenue primarily reflects the sharp decline in apparel shipped to U.S. retailers and brand owners, partially offset by modest growth in the European market.

As the U.S. apparel market stabilizes, RIS will be better positioned than ever to capitalize on its large market, made even more accessible with the acquisition of Paxar.

The decline in profitability in the second quarter primarily reflects low volumes in the current weak retail environment, as well as inflation, including increased labor costs in China. The impact of these factors was partially offset by integration synergies and other sources of productivity.

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