When Avery Dennison Corp. reports its first quarter earnings this week, it is expected to deliver a year-over-year decline in earnings on higher revenues, according to Zacks Investment Research.
A story posted at the Zacks website on April 19 said the consensus among its analysts who follow the Glendale manufacturer of pressure-sensitive materials, tickets, tags and labels is that the company will report on April 26 an earnings per share of $2.18 for the quarter ending in March. That is a 9 percent decrease from the same period a year earlier when earnings were $2.40.
“Revenues are expected to be $2.3 billion, up 12 percent from the year-ago quarter,” Zacks said.
The stock research firm uses a proprietary model that relies partly on information from analysts who cover a company. But the result is a little complicated.
The Zacks model compares the most recent earnings forecast with the consensus forecast. In the case of Avery Dennison, the most recent earnings prediction is lower than the consensus – $2.09 compared to $2.18 – and thus is a -3.91 percent in the expected surprise prediction.
“On the other hand, the stock currently carries a Zacks Rank of No. 3 (or a hold),” Zacks said. “So, this combination makes it difficult to conclusively predict that Avery Dennison will beat the consensus EPS (earnings per share) estimate.”
The research firm said it was a good thing to look at the surprise prediction history of a company to see if it would beat the consensus EPS estimate of a company.
In Avery Dennison’s case, last quarter the company had an earnings consensus of $2.15 while its actual was $2.13 – thus making for a -.93 percent surprise quotient.
Of the last four quarters, Avery Dennison had beaten he consensus EPS estimates three times.
“Avery Dennison doesn’t appear a compelling earnings-beat candidate,” the Zacks story concluded. “However, investors should pay attention to other factors too, for betting on this stock or staying away from it ahead of its earnings release.”
Analysts’ ratings
Avery Dennison on Feb. 2 reported adjusted net income of $178 million ($2.13 a share) for the quarter ending Jan. 1, down from an adjusted net income of $191 million ($2.27) in the same period a year earlier. Revenue increased by 10 percent, to $2.2 billion.
In the 52-week period ending April 20, shares in Avery Dennison lost about 14 percent of their value. During the same span, the S&P 500 index gained nearly 8 percent. The stock closed at $171.08 on April 20.
Still, analysts who follow the company have been generally pleased with the direction Avery Dennison is taking.
BMO Capital Markets Corp. analyst John McNulty rated the stock as an outperform or a buy.
Expectations for the fourth quarter were mixed going in as investors feared disruptions in the retail channels and worried that raw materials pressures could derail Avery, but they did not, McNulty wrote in a research report from February.
“While the LGM (label and graphic materials/IHM industrial and healthcare materials) segments were nicked even harder by raws/freight than expected (like many), the strength of the RBIS (Retail Branding and Information Solution) segment, including significant growth in smart tags, helped to offset the temporary headwinds,” McNulty wrote in the report.
Matthew Miller, an equity analyst with CFRA, wrote in a research report from April that Avery Dennison was due for a good year and that he forecast 10 percent growth for the company.
“During lockdowns related to Covid-19, label and tag demand for the apparel industry was a major drag on growth but has bounced back strong,” Miller wrote. “Label and Graphic Materials has benefited from strong demand in food, hygiene, and pharmaceutical product labeling and information labeling related to e-commerce.”
Miller also rated the stock a buy, driven by his view of Avery’s resilient business model and his outlook for growing free cash flow, despite risks facing global economic growth.
He likes Avery’s business model and thinks the company has strong competitive advantage in many of its markets, he said in the report.
“Long-term growth is expected to be driven by market expansion in pressure-sensitive labels and further penetration of emerging markets,” Miller wrote. “We forecast strong growth in the RFID (Intelligent Labels) market (continued strength in apparel and new market penetration) and we forecast AVY benefiting from expanding margins (over the long term) from higher prices and a better product mix.”