Avery RIS to deliver strong growth with rapidly expanding margins

22 Oct '08

5 min read

Avery Dennison Corporation reported third quarter 2008 results. "Avery Dennison showed resilience in a very challenging environment and expects to generate record free cash flow in 2008, despite the economic slowdown and rising raw material prices," said Dean A. Scarborough, president and chief executive officer of Avery Dennison. "Organic revenue growth slowed and margins contracted in the third quarter, reflecting current market conditions.

"With the continued economic slowdown, we are lowering operating costs and accelerating productivity improvement, further trimming capital expenditures and working capital, and are planning additional cost-reduction actions. We continue to invest in our longer-term growth initiatives. While we are reducing our near-term outlook, the strength of our franchises in pressure-sensitive materials, retail information services, and office products makes us highly confident in our future."

Pressure-sensitive Materials revenue increased in the quarter, driven by changes in currency rates and growth in the emerging markets. Revenue growth net of currency translation was 1.4 percent. Sales in local currency declined in the U.S. and were flat in Europe, reflecting slower economic conditions. Segment margin compression reflects raw material inflation outpacing the initial benefits of price increases, and negative product mix, partially offset by continued improvements in operational efficiency.

"Contributing to the slowdown in Pressure-sensitive revenue growth is a reduction in new product launches and redesigns by packaged-goods companies, consistent with the weak retail environment," Scarborough said. "We expect normal end-user activity to resume when consumer confidence increases. In the near term, we will continue to address cost inflation through additional price increases and productivity improvements."

Retail Information Services (RIS) - The decline in RIS revenue reflects a continued decline in the domestic retail apparel market, and further weakening in Europe. Adjusting for acquisitions, segment revenue declined 7.3 percent, net of currency translation. The cost savings from integration synergies and other productivity initiatives were more than offset by the effects of reduced fixed cost leverage, continued inflation, and incremental intangible amortization associated with acquisitions.

"Notwithstanding the extraordinary market conditions, RIS continues to build its competitive advantages of data management, global footprint, quality, and customization," said Scarborough. "When the U.S. and European apparel markets stabilize, we expect RIS to deliver strong growth with rapidly expanding margins."

Office and Consumer Products segment revenue declined primarily as a result of end-market softness in the U.S. Third Quarter year-over-year comparisons were affected by weak end-market demand, partially offset by a third-quarter benefit from the timing of back-to-school shipments. Overall, the back-to-school season was soft. Net of currency translation, organic revenue declined approximately 4 percent.

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