Highlights:
- 3Q23 Net sales of $2.1 billion
- Sales change ex. currency (non-GAAP) down 10%
- Organic sales change (non-GAAP) down 11%
- 3Q23 Reported EPS of $1.71
- Adjusted EPS (non-GAAP) of $2.10, up 9% sequentially
- 4Q23 Reported EPS guidance of $2.05 to $2.20
- Adjusted EPS guidance of $2.10 to $2.25
MENTOR, Ohio, October 25, 2023 – Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its third quarter ended September 30, 2023. Non-GAAP financial measures referenced in this release are reconciled from GAAP in the attached financial schedules. Unless otherwise indicated, comparisons are to the same period in the prior year.
“Earnings per share were in line with our expectations for the third quarter, again increasing sequentially,” said Deon Stander, president and CEO. “Volume in both Label Materials and Apparel Solutions improved sequentially, continuing to recover from slow market conditions, largely inventory destocking, while our Intelligent Labels platform continued to accelerate adoption into new categories.
“We expect further sequential improvement in the fourth quarter, as the pace of inventory destocking continues to moderate and non-apparel intelligent label programs accelerate.
“In Intelligent Labels, we expect to deliver more than twenty percent growth annually in the coming years, as adoption accelerates in logistics, food, and general retail, and apparel rebounds, further advancing our leadership position at the intersection of the physical and digital,” added Stander.
“We remain confident that the consistent execution of our strategies will enable us to meet our long-term goals for superior value creation through a balance of profitable growth and capital discipline.
“Once again, I want to thank our entire team for their continued resilience and commitment to addressing the unique challenges at hand.”
Third Quarter 2023 Results by Segment
Materials Group
- Reported sales decreased 14% to $1.5 billion. Sales were down 16% ex. currency and on an organic basis.
- Label Materials sales were down high-teens on an organic basis.
- Lower volume was driven primarily by inventory destocking.
- Volume was up sequentially as the impact of inventory destocking continues to moderate.
- Sales decreased by low-single digits organically in the Graphics and Reflective Solutions businesses.
- Sales increased by low-single digits organically in the combined Performance Tapes and Medical businesses.
- Reported operating margin was 12.1%. Adjusted EBITDA margin (non-GAAP) was strong, increasing 70 basis points sequentially to 16.4%. Adjusted EBITDA margin increased 90 basis points compared to prior year, as productivity and temporary cost-saving actions more than offset lower volume and mix.
Solutions Group
- Reported sales increased 3% to $642 million. Sales were up 5% ex. currency and 1% on an organic basis.
- Apparel Solutions volume was up sequentially; retailer and brand sentiment remains muted.
- Sales in high-value categories were up high-single digits on an organic basis.
- Sales were down mid-to-high single digits organically in base solutions.
- Reported operating margin was 7.9%. Adjusted EBITDA margin was 16.4%, up 60 basis points sequentially and is expected to further improve in Q4. Adjusted EBITDA margin decreased 250 basis points compared to prior year, driven by volume, higher employee costs and growth investments, partially offset by productivity and temporary cost-saving actions.
- The company announced an agreement to acquire Silver Crystal Group, expanding our external embellishments portfolio, with annual sales of approximately $30 million.
Other
Balance Sheet and Capital Deployment
During the first three quarters of the year, the company deployed $204 million for acquisitions and returned $309 million in cash to shareholders through a combination of dividends and share repurchases. The company repurchased 0.7 million shares at an aggregate cost of $117 million during the first three quarters of the year. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down 0.7 million compared to the same time last year.
The company continues to deploy capital in a disciplined manner, executing its long-term capital allocation strategy. The company’s balance sheet remains strong. Net debt to adjusted EBITDA (non-GAAP) was 2.6x at the end of the third quarter.
Income Taxes
The company’s reported third quarter effective tax rate was 25.1%. The adjusted tax rate (non-GAAP) for the quarter was 26.3%.
The company’s 2023 adjusted tax rate is expected to be in the mid-twenty percent range based on current tax regulations.
Cost Reduction Actions
During the first three quarters of the year, the company realized approximately $45 million in pre-tax savings from restructuring, net of transition costs, and incurred approximately $71 million in pre-tax restructuring charges.
Guidance
In its supplemental presentation materials, “Third Quarter 2023 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its fourth quarter 2023 financial results. Based on the factors listed and other assumptions, the company expects fourth quarter 2023 reported earnings per share of $2.05 to $2.20.
Excluding an estimated $0.05 per share impact of restructuring charges and other items, the company expects fourth quarter 2023 adjusted earnings per share of $2.10 to $2.25.
For more details on the company’s results, see the summary tables accompanying this news release, as well as the supplemental presentation materials, “Third Quarter 2023 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.
Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.
