Avery Dennison Corporation (AVY - Analyst Report) reported adjusted earnings of 90 cents per share in the fourth quarter of 2014, up 30% from 69 cents earned in the year-ago quarter, driven by its cost savings initiatives. The results beat the Zacks Consensus Estimate of 80 cents, a positive earnings surprise of 13%.

Including restructuring costs and other items, earnings from continuing operations were 75 cents per share in the quarter, compared with 45 cents in the year-ago quarter.
 

Total revenue edged up 1.3% to $1,605 million from $1,584 million in the prior-year quarter. Revenue, however, fell short of the Zacks Consensus Estimate of $1,608 million. On an organic basis, sales grew 1% year on year.

Cost of sales in the reported quarter rose 1.9% year over year to $1,190 million. Gross profit inched down 0.3% to $415 million while gross margin contracted 40 basis points (bps) to 25.9%.

Marketing, general and administrative expenses were $285 million versus $299 million in the year-ago quarter. Adjusted operating profit increased 10.6% to $130 million. Adjusted operating margin improved 70 bps to 8.1% on a year-over-year basis.
 
Segmental Performance

Total revenue in the Pressure-sensitive Materials segment increased 2% to $1,177 million. Label and Packaging Materials sales rose in the low-single digits. Sales for Graphics, Reflective and Performance Tapes increased in the mid-single digits. Adjusted operating profit increased 12% to $125 million in the quarter compared with $111 million in the year-ago quarter.

Total revenue from Retail Branding and Information Solutions segment declined 3% to $406 million from $417 million in the year-earlier quarter due lower volume in Europe and North America. The segment’s adjusted operating income dipped 12% to $27.6 million.

Vancive Medical Technologies segment reported net sales of $22.5 million, up 29% from $17.4 million in the year-ago quarter. The segment, however, reported an adjusted operating loss of $0.4 million, narrower than the year-ago quarter loss of $2.1 million.

Financial Updates

As of fiscal 2014-end, Avery Dennison had cash and cash equivalents of $227 million, down from $352 million as of fiscal 2013-end. Cash provided by operating activities for fiscal 2014 was $374 million compared with $320 million in the prior fiscal.

Long-term debt of the company decreased to $945 million as of fiscal 2014-end from $950.6 million as of fiscal 2013-end. Debt-to-capitalization ratio increased to 52% as of fiscal 2014-end from 40.8% as of fiscal 2013-end. The company repurchased 7.4 million shares in fiscal 2014 at an aggregate cost of $356 million.

Cost Reduction Activities

In 2014, Avery Dennison realized approximately $35 million in savings from restructuring. The company incurred restructuring costs of approximately $66 million, of which $55 million represents cash charges.

Fiscal 2014 Performance

Avery Dennison reported adjusted earnings per share of $3.11, up 16% year over year, surpassing the Zacks Consensus Estimate of $3.02. Including one-time items, earnings from continuing operations stood at $2.62 compared with $2.44 in the prior fiscal year. Revenues increased 3% year over year to $6.33 billion, missing the Zacks Consensus Estimate of $6.35 billion.

Fiscal 2015 Outlook

Avery Dennison expects adjusted earnings per share to range between $3.20 and $3.40 in fiscal 2015. Management expects growth of 3% to 9% from fiscal 2014, despite significant headwind from currency translation.

Our Take

The Pressure-sensitive Materials segment continues to witness strong volume growth. The segment will continue to benefit from product introductions and growth in emerging markets. Even though the Retail Branding Information Solutions segment is being affected by weakness in retail apparel, demand has increased in the U.S. Adoption of RFID (radio frequency identification) will be a long- term driver for the segment. Moreover, cost reductions and further share repurchases will boost earnings.

Pasadena, CA-based Avery Dennison manufactures pressure-sensitive materials and tickets, tags, labels and other converted products. The company has over 200 manufacturing and distribution facilities in more than 60 countries.

Currently, Avery has a Zacks Rank #3 (Hold). However, other better-ranked in the industrial products sector include Advanced Emissions Solutions, Inc. (ADES - Snapshot Report), Casella Waste Systems Inc. (CWST - Snapshot Report) and Perma-Fix Environmental Services Inc. (PESI - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).