Avery Positioned to Grow as Economy Ramps Up

Avery Dennison Corp. has made progress toward its five key goals as reflected in the company’s fourth-quarter and year-end earnings released last month.

The five goals for the Glendale label and packaging materials manufacturer were to drive outsized growth in high-value categories; grow profitably in its base businesses; continue a focus on productivity; show discipline in capital allocation; and lead with environmentally and socially responsible practices and products.

Chief Executive Mitch Butier said during a conference call with analysts that he was pleased with the progress the company is making.

“Our consistent performance reflects the strength of our markets, our industry-leading positions, the strategic foundations we’ve laid and our agile and talented team,” Butier said during the call.On the responsibility front, the company continued to make solid progress toward its 2025 sustainability goals, Butier said.

“We have substantially reduced the environmental impact of our operations, while focusing increasingly on the development and launch of more innovative, environmentally friendly products and solutions,” he added.

On Feb. 3, Avery Dennison reported adjusted net income of $191 million ($2.27 a share) for the quarter ending Jan. 2, a significant increase from adjusted net income of $147 million ($1.92) in the same period a year earlier. Revenue increased by 12 percent to $1.99 billion.Over the past 52 weeks, the value of shares in Avery Dennison has increased 51 percent, through Feb. 24 when shares closed at $180.52.

Analysts with Robert W. Baird & Co. Inc. and BMO Capital Markets rated the stock as “outperform” in their recent research notes on the company.

Matthew Miller, an analyst with CFRA, an independent investment research firm based in New York, however, had a hold rating on Avery Dennison shares based on relative valuation weighed against a resilient business model and an outlook for stable free cash flow, despite the headwinds facing global economic growth.“We like (Avery’s) business model and think the company has a strong competitive advantage in many of its markets,” Miller wrote in a recent research note. “Long-term growth is expected to be driven by market expansion in pressure sensitive labels and further penetration of emerging markets.”John McNulty, the analyst who follows Avery for BMO Capital Markets, said in his research note that the company has a number of things going for it this year and the following year.

For one, the adoption of radio frequency identification (RFID) labels is likely to see accelerated growth in the coming years.

Also, the company’s cyclical businesses – industrial and health care materials, graphics and retail branding and information solutions – is poised for significant snapback with economic expansion. Market demand, in combination with a leaner cost structure, will drive robust earnings, McNulty wrote in his note.“All of that plus significant free cash coming in and (Avery) should handily outperform,” McNulty added.

New technology adoptionDuring the conference call, McNulty specifically asked if RFID could explain what created a 5-point increase in retail branding and information solutions sales for Avery overall and a 5-point decrease in that segment in Asia.

“It’s RFID adoption, that’s exactly it,” Butier responded. “And the RFID adoption is far ahead in the U.S. versus other regions.”In his research note, Baird analyst Ghansham Panjabi also engaged the RFID market, saying that the business case for the technology would be strong in a post-COVID world as it will likely involve increased investment at the retailer level to go along with growing e-commerce trade across multiple industries, including food service.

“We also believe that the focus at Avery will be on adding tangential capabilities to further diversify the Intelligent Label platform – similar to the Smartrac acquisition,” Panjabi wrote.The Smartrac transaction closed in March of last year. In early January, the Avery Dennison acquired the assets of ACPO Ltd., an Ohio-based manufacturer of pressure-sensitive labels and industrial tapes, for $87.6 million.

And last month it announced another acquisition, this time of JDC Solutions, a Mount Juliet, Tenn.-based producer of pressure-sensitive tapes, for $24 million. The deal is scheduled to close in the next six weeks.

When it does, JDC’s roughly 75 employees, product portfolio and manufacturing assets will join Avery Dennison’s Performance Tapes North America line of business.JDC was founded in 1973 and manufactures pressure-sensitive specialty tapes for use in automotive, appliance, building and construction, computer disk-drive and health care applications.