Avery Dennison Announces Second Quarter 2022 Results

July 27, 2022

Highlights:

• 2Q22 Reported EPS of $2.61
  • Adjusted EPS (non-GAAP) of $2.64
• 2Q22 Net sales increased 11.7% to $2.3 billion
  • Sales growth ex. currency (non-GAAP) of 16.7%
  • Organic sales growth (non-GAAP) of 11.3%
• Raised FY 2022 EPS guidance
  • Reported EPS of $9.60 to $9.90 (previously $9.35 to $9.75)
  • Adjusted EPS of $9.70 to $10.00 (previously $9.45 to $9.85)

Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its second quarter ended July 2, 2022. Non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached financial schedules. Unless otherwise indicated, comparisons are to the same period in the prior year.

“We once again delivered strong financial results amidst a dynamic environment, with earnings above expectations,” said Mitch Butier, Avery Dennison chairman and CEO. “LGM and RBIS delivered impressive earnings growth and momentum in Intelligent Labels is further accelerating.

“Our strong performance comes at a challenging time as supply chains remain tight, inflationary pressures are significant and COVID-19 continues. Despite these challenges and a significant currency translation headwind, we have raised our guidance for the year,” said Butier. “The strategic foundations we have laid enable us to generate superior value creation through a balance of GDP-plus growth and top-quartile returns over the long-term.

“Once again, I want to thank our entire team for their tireless efforts to keep one another safe while continuing to deliver for our customers during this challenging period. The team continues to raise their game each quarter to address the unique challenges at hand.”

Second Quarter 2022 Results by Segment

Label and Graphic Materials

• Reported sales increased 8% to $1.5 billion. Sales were up 14% ex. currency and 15% on an organic basis.
  • Label and Packaging Materials sales were up high teens on an organic basis with strong growth in both high value product categories and the base business.
  • Sales decreased by mid-single digits organically in the combined Graphics and Reflective Solutions businesses.
  • On an organic basis, sales were up high teens in North America, more than 20% in Western Europe, and mid-single digits in emerging markets.
• Reported operating margin decreased 140 basis points to 15.2%. Adjusted EBITDA margin (non-GAAP) increased 50 basis points to 17.1%, as the benefits from the net impact of pricing, freight and raw material costs, productivity and mix more than offset higher employee-related costs and lower volume.
• Inflation continues to be significant in the company’s materials businesses; it anticipates more than 20% inflation in 2022 compared to prior year.

Retail Branding and Information Solutions

• Reported sales increased 24% to $658 million. Sales were up 27% ex. currency and 5% on an organic basis.
  • Growth was strong in the high value product categories, including Intelligent Labels and external embellishments.
  • Sales decreased by low-single digits in the base business following strong prior quarter, up mid-single digits year-to-date.
• Reported operating margin increased 490 basis points to 12.9%. Adjusted EBITDA margin increased 220 basis points to 19.0% as the combined benefit from higher organic volume and acquisitions was partially offset by growth investments and higher employee-related costs.

Industrial and Healthcare Materials

• Reported sales increased 1% to $198 million. Sales were up 5% ex. currency and 7% on an organic basis reflecting a mid-single digit increase in industrial categories and a high teens increase in healthcare categories.
• Reported operating margin decreased 120 basis points to 10.3%. Adjusted EBITDA margin increased 190 basis points sequentially to 13.7%. Adjusted EBITDA margin decreased 160 basis points versus prior year as the benefits from the net impact of pricing, freight, and raw material costs were more than offset by higher employee-related costs and lower volume/mix.
  • Lower volume was principally driven by China.

Other

Balance Sheet and Capital Deployment

During the first half of the year, the company deployed $37 million for acquisitions and returned $386 million in cash to shareholders, up $183 million compared to last year, through a combination of share repurchases and dividends. The company repurchased 0.7 million shares in the second quarter at an aggregate cost of $117 million. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down 1.9 million compared to the same time last year.

The company’s balance sheet remains strong, with ample capacity to continue executing its long-term capital allocation strategy. Net debt to adjusted EBITDA (non-GAAP) was 2.2 at the end of the second quarter.

Income Taxes

The company’s reported second quarter effective tax rate was 25.5%. The adjusted tax rate (non-GAAP) for the quarter was 25.6%, which is also the company’s current expectation for its full-year adjusted tax rate.

Cost Reduction Actions

In the second quarter, the company realized approximately $6 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $3 million.

Guidance

In its supplemental presentation materials, “Second Quarter 2022 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2022 financial results. Based on the factors listed and other assumptions, the company has raised its guidance range for 2022 reported earnings per share from $9.35 to $9.75 to $9.60 to $9.90.

Excluding an estimated $0.10 per share related to restructuring charges and other items, the company raised its guidance range for adjusted earnings per share from $9.45 to $9.85 to $9.70 to $10.00.