OREANDA-NEWS. Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its first quarter ended April 2, 2016. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, comparisons are to the same period in the prior year.

“We’re off to a very good start to the year,” said Dean Scarborough, Avery Dennison chairman and CEO. “Both of our core businesses delivered solid organic sales growth and significant margin expansion, driving mid-teens growth in adjusted EPS, above our expectations for the quarter.

“Our consistently strong performance is testament to the strategic foundations we have laid, as well as the strength and depth of our leadership team. I am happy to say that the leadership transition we have had underway has been seamless, and I hand off my CEO duties to Mitch with complete confidence,” Scarborough added.

“I am really proud to have been a part of making Avery Dennison the leading company that it is today, and am as excited about the company’s future as I was when I joined more than thirty years ago,” said Scarborough.

“I look forward to working with our board and leadership team to continue building on our solid foundation," said Mitch Butier, Avery Dennison president and chief operating officer. "We have excellent prospects for profitable growth, exemplified by our strong results in the first quarter.

"PSM's solid earnings growth reflected a return to high single-digit organic growth in emerging markets, alongside outstanding productivity gains globally,” Butier added. “RBIS grew through continued momentum in radio-frequency identification products. While we have not yet met our objective to accelerate growth in core product sales, the team is executing well against its aggressive margin improvement plans for the year.

“We have raised our outlook for full-year adjusted earnings per share, reflecting some relief from currency translation headwinds, combined with strong operating performance in the first quarter,” said Butier. “We continue to 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."

First Quarter 2016 Results by Segment

All references to sales reflect comparisons on an organic basis, which exclude the estimated impact of currency translation, product line exits, and acquisitions and divestitures. Adjusted operating margin refers to income before interest expense and taxes, excluding restructuring charges and other items, as a percentage of sales.

Pressure-sensitive Materials (PSM)

  • PSM sales increased approximately 4 percent. Within the segment, sales in both Label and Packaging Materials and combined Graphics and Performance Tapes increased mid-single digits.
  • Operating margin improved 170 basis points to 12.7 percent as the benefit of productivity initiatives and increased volume more than offset higher employee-related costs. Adjusted operating margin improved 140 basis points.

Retail Branding and Information Solutions (RBIS)

  • RBIS sales increased approximately 4 percent.
  • Operating margin increased 200 basis points to 6.9 percent as the benefit of productivity initiatives and increased volume more than offset higher employee-related costs. Adjusted operating margin increased 140 basis points.

Other

Share Repurchases / Equity Dilution from Long-Term Incentives

The company repurchased 1.5 million shares in the first quarter of 2016 at an aggregate cost of $96 million. Net of dilution, the company reduced its share count by 0.8 million in the first quarter. The cost of repurchases, net of proceeds from stock option exercises, was $80 million.

Income Taxes

The first quarter effective tax rate was 27 percent. The adjusted tax rate for the first quarter was 34 percent, consistent with the anticipated full year tax rate in the low to mid-thirty percent range.

Cost Reduction Actions

In the first quarter, the company realized approximately $27 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $6 million, nearly all of which represented cash charges.

Pension Liability Settlement Charges

As part of a previously announced long-term strategy to reduce financial volatility associated with its frozen defined benefit pension plan for U.S. employees, the company offered eligible former employees the option to receive their benefits immediately as either a lump sum payment or an annuity, rather than waiting until they are retirement eligible under the terms of the plan. Satisfaction of this offer will be made out of existing plan assets during the second quarter of this year. No additional contributions to the plan are required to complete the offering.

This action settles approximately $70 million of the company’s existing pension liability. The company estimates that it will incur a one-time, non-cash charge of approximately $40 million, or approximately $0.30 per share, in the second quarter. This action is not expected to change required contributions to the pension plan over the next several years. The company does not anticipate making any contributions to the U.S. pension plan in 2016, and the amount of contributions to foreign plans is expected to be similar to recent years.

Outlook

In its supplemental presentation materials, “First Quarter 2016 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2016 financial results. Based on the factors listed and other assumptions, the company now expects 2016 earnings per share of $3.25 to $3.40. Excluding an estimated $0.20 per share for restructuring charges and other items, and $0.30 per share for non-cash charges to settle certain U.S. pension obligations, the company now expects adjusted (non-GAAP) earnings per share of $3.75 to $3.90.

Note: Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.

About Avery Dennison

Avery Dennison (NYSE:AVY) is a global leader in labeling and packaging materials and solutions. The company’s applications and technologies are an integral part of products used in every major market and industry. With operations in more than 50 countries and over 25,000 employees worldwide, Avery Dennison serves customers with insights and innovations that help make brands more inspiring and the world more intelligent. Headquartered in Glendale, California, the company reported sales of $6.0 billion in 2015.