Highlights:
- 3Q21 Reported EPS of $1.96, up 9%
- Adjusted EPS (non-GAAP) of $2.14, up 12%
- 3Q21 Net sales increased 19.8% to $2.07 billion
- Sales growth ex. currency (non-GAAP) of 17.0%
- Organic sales growth (non-GAAP) of 13.9%
- FY 2021 EPS guidance ranges revised
- Reported EPS range now $8.55 to $8.70 (previously $8.50 to
$8.80)
- Adjusted EPS range raised to $8.80 to $8.95 (previously $8.65
to $8.95)
Avery Dennison Corporation (NYSE:AVY) today announced
preliminary, unaudited results for its third quarter ended October
2, 2021. 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 delivered another strong quarter,” said Mitch Butier,
chairman, president and CEO. “Both LGM and RBIS delivered
impressive top and bottom-line growth, with continued momentum in
Intelligent Labels. This strong performance comes during a
challenging period given the ongoing global health crisis, as
supply chains remain tight and significant inflationary pressures
continue to build.
“Given our performance in the third quarter, we raised our
outlook for the full year as we continue to deliver significant
earnings growth,” added Butier. “We are also pleased that the
acquisition of Vestcom, a business that further expands our
position in high value categories in RBIS and has the potential to
further advance our Intelligent Labels strategy, closed in the
quarter.
“Once again, I want to thank our entire team for their tireless
efforts to keep one another safe while delivering for all our
stakeholders.”
Operational/Market
Update
In the third quarter, uncertainty surrounding the global health
crisis remained elevated as parts of the world experienced a surge
in COVID-19 cases, particularly in South Asia. As the pandemic
evolves, the company has continued to adapt its world-class safety
protocols. The safety and well-being of employees remains the
company’s top priority. The greatest impact of the increase in
COVID-19 cases to the company was in Vietnam, particularly in RBIS,
which was significantly constrained for the majority of the
quarter. While certain manufacturing sites were operating well
below full capacity, the company leveraged its global scale to
minimize disruptions to customers. All manufacturing locations are
now largely operational.
The company continues to actively manage through a dynamic
supply and demand environment. Demand across the majority of
businesses and regions remains very strong, while raw materials,
freight and labor availability continue to be constrained. The
company continues to leverage its global scale and work closely
with customers and suppliers to minimize disruptions. Inflation
remains persistent and additional pricing and material
re-engineering actions are being implemented to offset higher
costs.
Third Quarter 2021 Results by
Segment
Label and Graphic Materials
- Reported sales increased 18% to $1.3 billion. Compared to prior
year, sales were up 15% ex. currency (12% vs. 2019) and 14% on an
organic basis (11% vs. 2019).
- Label and Packaging Materials sales were up approximately 15%
from prior year on an organic basis, with strong growth in both the
high value product categories and the base business.
- Sales increased by approximately 11% organically in the
combined Graphics and Reflective Solutions businesses.
- On an organic basis, sales were up low-double digits in North
America and emerging markets and more than 20% in Western
Europe.
- Reported operating margin decreased 140 basis points to 13.7%.
Adjusted operating margin decreased 140 basis points to 13.8%,
driven by the benefit of higher volume/mix, net of supply chain
disruptions, which was more than offset by the net impact of
pricing and raw material costs and higher employee-related
costs.
Retail Branding and Information Solutions
- Reported sales increased 25% to $531 million. Compared to prior
year, sales were up 22% ex. currency (29% vs. 2019) and 14% on an
organic basis (9% vs. 2019), reflecting strong growth in both the
high value product categories and the base business.
- Intelligent Labels was up approximately 15% organically (40%
vs. 2019).
- Reported operating margin was flat to prior year at 11.0%.
Adjusted operating margin increased 170 basis points to 13.8% as
the benefits from higher volume and productivity were partially
offset by the headwind from prior year temporary cost reduction
actions, higher employee-related costs and growth investments.
- The Vestcom acquisition closed on August 31, 2021. Vestcom
expands RBIS’ role managing variable data in adjacent markets and
accelerates the portfolio shift to high value product categories.
The Vestcom business has above average sales growth and margins; we
expect modest EPS accretion from the acquisition in fiscal year
2021.
Industrial and Healthcare Materials
- Reported sales increased 24% to $195 million. Compared to prior
year, sales were up 20% ex. currency (11% vs. 2019) and 15% on an
organic basis (6% vs. 2019), reflecting a high-teens increase in
industrial categories and a high-single digit increase in
healthcare categories.
- Reported operating margin increased 170 basis points to 9.6%.
Adjusted operating margin decreased 220 basis points to 9.9% as the
benefit from higher volume/mix net of supply chain disruptions was
more than offset by the net impact of pricing, freight and raw
material costs and higher employee-related costs.
Other
Financing, Balance Sheet and Capital Deployment
In August, the company issued $300 million of 0.850% Senior
Notes due 2024 and $500 million of 2.250% Senior Notes due 2032.
The company used the net proceeds from these offerings, together
with cash on hand and commercial paper issuances, to finance the
previously announced Vestcom acquisition that closed on August 31,
2021.
During the first three quarters of the year, the company
deployed $1.5 billion for acquisitions and returned $290 million in
cash to shareholders through a combination of share repurchases and
dividends, up from $197 million for the same period last year. The
company repurchased 0.7 million shares at an aggregate cost of $126
million. Net of dilution from long-term incentive awards, the
company’s share count at the end of the quarter was down by 0.3
million compared to the same time last year.
The company’s balance sheet remains strong, with ample capacity
to continue executing our long term capital allocation strategy.
Net debt to adjusted EBITDA (non-GAAP) was 2.3 at the end of the
third quarter, at the lower end of the company’s long-term target
range.
Income Taxes
The company’s third quarter effective tax rate was 26.4%. The
adjusted (non-GAAP) tax rate for the quarter was 25.3%, which is
also the company’s current expectation for its full year adjusted
tax rate.
Cost Reduction Actions
In the third quarter, the company realized approximately $11
million in pre-tax savings from restructuring, net of transition
costs, and incurred pre-tax restructuring charges of approximately
$2 million.
Outlook
In its supplemental presentation materials, “Third Quarter 2021
Financial Review and Analysis,” the company provides a list of
factors that it believes will contribute to its 2021 financial
results. Based on the factors listed and other assumptions, the
company has revised its guidance range for 2021 reported earnings
per share from $8.50 to $8.80 to $8.55 to $8.70. Excluding an
estimated $0.25 per share related to restructuring charges and
other items, the company’s guidance range for adjusted earnings per
share has been raised from $8.65 to $8.95 to $8.80 to $8.95.
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 2021 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.
About Avery Dennison
Avery Dennison Corporation (NYSE: AVY) is a global materials
science company specializing in the design and manufacture of a
wide variety of labeling and functional materials. The company’s
products, which are used in nearly every major industry, include
pressure-sensitive materials for labels and graphic applications;
tapes and other bonding solutions for industrial, medical, and
retail applications; tags, labels and embellishments for apparel;
and radio frequency identification (RFID) solutions serving retail
apparel and other markets. Headquartered in Glendale, California,
the company employed more than 32,000 employees in more than 50
countries in 2020. Reported sales in 2020 were $7.0 billion. Learn
more at www.averydennison.com.
“Safe Harbor” Statement under the Private
Securities Litigation Reform Act of 1995
Certain statements contained in this document are
"forward-looking statements" intended to qualify for the safe
harbor from liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements,
and financial or other business targets, are subject to certain
risks and uncertainties. Forward-looking statements also include
those related to the acquisition of Vestcom, including its
anticipated benefits, financing and effect on our long-term targets
and future financial results.
We believe that the most significant risk factors that could
affect our financial performance in the near-term include: (i) the
impacts to underlying demand for our products and/or foreign
currency fluctuations from global economic conditions, political
uncertainty, changes in environmental standards and governmental
regulations, including as a result of COVID-19; (ii) competitors’
actions, including pricing, expansion in key markets, and product
offerings; (iii) the degree to which higher costs can be offset
with productivity measures and/or passed on to customers through
price increases, without a significant loss of volume; and (iv) the
execution and integration of acquisitions, including the
acquisition of Vestcom.
Actual results and trends may differ materially from historical
or anticipated results depending on a variety of factors, including
but are not limited to, risks and uncertainties relating to the
following:
- COVID-19
- International Operations – worldwide and local economic and
market conditions; changes in political conditions; and
fluctuations in foreign currency exchange rates and other risks
associated with foreign operations, including in emerging
markets
- Our Business – changes in our markets due to competitive
conditions, technological developments, environmental standards,
laws and regulations, and customer preferences; fluctuations in
demand affecting sales to customers; execution and integration of
acquisitions, including the acquisition of Vestcom; selling prices;
fluctuations in the cost and availability of raw materials and
energy; the impact of competitive products and pricing; customer
and supplier concentrations or consolidations; financial condition
of distributors; outsourced manufacturers; product and service
quality; timely development and market acceptance of new products,
including sustainable or sustainably-sourced products; investment
in development activities and new production facilities; successful
implementation of new manufacturing technologies and installation
of manufacturing equipment; our ability to generate sustained
productivity improvement; our ability to achieve and sustain
targeted cost reductions; and collection of receivables from
customers
- Vestcom acquisition – significant transaction costs or unknown
or inestimable liabilities; risks related to future opportunities
and plans for the combined company, including the uncertainty of
expected future financial performance and results of the combined
company; and the possibility that, if we do not achieve the
perceived benefits of the acquisition as rapidly or to the extent
anticipated by financial analysts or investors, the market price of
our common stock could decline
- Income Taxes – fluctuations in tax rates; changes in tax laws
and regulations, and uncertainties associated with interpretations
of such laws and regulations; retention of tax incentives; outcome
of tax audits; and the realization of deferred tax assets
- Information Technology – disruptions in information technology
systems, including cyber-attacks or other intrusions to network
security; successful installation of new or upgraded information
technology systems; and data security breaches
- Human Capital – recruitment and retention of employees;
fluctuations in employee benefit costs; and collective labor
arrangements
- Our Indebtedness – credit risks; our ability to obtain adequate
financing arrangements and maintain access to capital; volatility
of financial markets; fluctuations in interest rates; and
compliance with our debt covenants
- Ownership of Our Stock – potential significant variability of
our stock price and amounts of future dividends and share
repurchases
- Legal and Regulatory Matters – protection and infringement of
intellectual property and impact of legal and regulatory
proceedings, including with respect to environmental, health and
safety, anti-corruption and trade compliance
- Other Financial Matters – fluctuations in pension costs and
goodwill impairment
For a more detailed discussion of these factors, see “Risk
Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our 2020 Form 10-K, filed
with the Securities and Exchange Commission on February 25, 2021,
and subsequent quarterly reports on Form 10-Q.
The forward-looking statements included in this document are
made only as of the date of this document, and we undertake no
obligation to update these statements to reflect subsequent events
or circumstances, other than as may be required by law.
For more information and to listen to a live broadcast or an
audio replay of the quarterly conference call with analysts, visit
the Avery Dennison website at
www.investors.averydennison.com
Third Quarter Financial Summary - Preliminary, unaudited (In
millions, except % and per share amounts)
3Q
3Q
% Sales Change vs. P/Y
2021
2020
Reported Ex. Currency Organic (a) (b) Net sales, by segment: Label
and Graphic Materials
$1,345.8
$1,145.4
17.5%
14.6%
14.0%
Retail Branding and Information Solutions
530.7
426.1
24.5%
22.2%
13.5%
Industrial and Healthcare Materials
195.3
157.6
23.9%
20.0%
14.9%
Total net sales
$2,071.8
$1,729.1
19.8%
17.0%
13.9%
As Reported (GAAP) Adjusted Non-GAAP (c)
3Q
3Q
%
% of Sales
3Q
3Q
%
% of Sales
2021
2020
Change
2021
2020
2021
2020
Change
2021
2020
Operating income (loss) / operating margins before interest, other
non-operating expense (income), and taxes, by segment: Label and
Graphic Materials
$184.9
$173.1
13.7%
15.1%
$185.1
$174.5
13.8%
15.2%
Retail Branding and Information Solutions
58.5
47.0
11.0%
11.0%
73.1
51.4
13.8%
12.1%
Industrial and Healthcare Materials
18.7
12.5
9.6%
7.9%
19.4
19.1
9.9%
12.1%
Corporate expense (d)
(20.6)
(19.1)
(20.1)
(19.1)
Total operating income / operating margins before interest, other
non-operating expense (income), and taxes
$241.5
$213.5
13%
11.7%
12.3%
$257.5
$225.9
14%
12.4%
13.1%
Interest expense
$18.0
$15.6
$18.0
$15.6
Other non-operating expense (income), net (e)
($0.9)
$0.1
($1.5)
$0.1
Income before taxes
$224.4
$197.8
13%
10.8%
11.4%
$241.0
$210.2
15%
11.6%
12.2%
Provision for (benefit from) income taxes
$59.2
$46.3
$61.0
$48.7
Equity method investment (losses) gains
($1.1)
($1.0)
($1.1)
($1.0)
Net income
$164.1
$150.5
9%
7.9%
8.7%
$178.9
$160.5
11%
8.6%
9.3%
Net income per common share, assuming dilution
$1.96
$1.79
9%
$2.14
$1.91
12%
3Q Free Cash Flow (f)
$251.2
$232.9
YTD Free Cash Flow (f)
$639.2
$341.7
See accompanying schedules A-4 to A-10 for reconciliations
from GAAP to non-GAAP financial measures. (a)
Sales change ex. currency refers to the increase or decrease in net
sales, excluding the estimated impact of foreign currency
translation, and, where applicable, the calendar shift resulting
from the extra week in the prior fiscal year and currency
adjustment for transitional reporting of highly inflationary
economies. The estimated impact of foreign currency translation is
calculated on a constant currency basis, with prior period results
translated at current period average exchange rates to exclude the
effect of currency fluctuations. (b) Organic
sales change refers to sales change ex. currency, excluding the
estimated impact of acquisitions and product line divestitures.
(c) Excludes impact of restructuring charges
and other items. (d) As reported "Corporate
expense" in the third quarter of 2021 includes severance and
related costs of $.5. (e) As reported "Other
non-operating expense (income), net" in the third quarter of 2021
includes pension plan settlement loss of $.6. (f)
Free cash flow refers to cash flow provided by operating
activities, less payments for property, plant and equipment,
software and other deferred charges, plus proceeds from sales of
property, plant and equipment, plus (minus) net proceeds from
insurance and sales (purchases) of investments. Free cash flow is
also adjusted for, where applicable, certain acquisition-related
transaction costs.
A-1
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (In millions, except per
share amounts) (UNAUDITED) Three Months
Ended Nine Months Ended
Oct. 2, 2021
Sep. 26, 2020
Oct. 2, 2021
Sep. 26, 2020
Net sales $
2,071.8
$
1,729.1
$
6,225.1
$
4,980.6
Cost of products sold
1,517.4
1,244.9
4,497.4
3,628.4
Gross profit
554.4
484.2
1,727.7
1,352.2
Marketing, general and administrative expense
296.9
258.3
916.2
758.7
Other expense (income), net(1)
16.0
12.4
16.3
57.3
Interest expense
18.0
15.6
50.2
54.4
Other non-operating expense (income), net(2)
(0.9
)
0.1
(3.6
)
(0.2
)
Income before taxes
224.4
197.8
748.6
482.0
Provision for (benefit from) income taxes
59.2
46.3
187.7
114.8
Equity method investment (losses) gains
(1.1
)
(1.0
)
(3.5
)
(2.8
)
Net income $
164.1
$
150.5
$
557.4
$
364.4
Per share amounts: Net income per common share, assuming
dilution $
1.96
$
1.79
$
6.64
$
4.34
Weighted average number of common shares outstanding,
assuming dilution
83.7
84.0
83.9
84.0
(1)
"Other expense (income), net" for the third quarter of 2021
includes severance and related costs of $1.1, asset impairment
charges of $1.3 and transaction and related costs of $19.4,
partially offset by gain on investment of $4.9 and gain on sale of
product line of $.9. "Other expense (income), net" for the
third quarter of 2020 includes severance and related costs of $6.5,
asset impairment charges of $4.4, and loss on investment of $1.5.
"Other expense (income), net" for 2021 YTD includes
severance and related costs of $5.1, asset impairment and lease
cancellation charges of $1.9, transaction and related costs of
$20.1, and loss on sale of assets, net, of $.2, partially offset by
gain on sale of product line of $5.7, gain on investment of $4.9,
and outcomes of legal proceedings, net, of $.4. "Other
expense (income), net" for 2020 YTD includes severance and related
costs of $46.4, asset impairment charges of $6.2, transaction and
related costs of $3.2, and loss on investment of $1.5.
(2)
"Other non-operating expense (income), net" for 2021 QTD and
YTD includes pension plan settlement loss of $.6 and $1,
respectively.
A-2
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED BALANCE SHEETS (In millions)
(UNAUDITED) ASSETS
Oct. 2, 2021
Sep. 26, 2020
Current assets: Cash and cash equivalents $
207.2
$
284.7
Trade accounts receivable, net
1,441.2
1,212.7
Inventories, net
879.1
662.6
Other current assets
251.0
214.5
Total current assets
2,778.5
2,374.5
Property, plant and equipment, net
1,405.5
1,233.9
Goodwill and other intangibles resulting from business
acquisitions, net
2,828.2
1,253.4
Deferred tax assets
152.7
203.3
Other assets
802.8
655.7
$
7,967.7
$
5,720.8
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Short-term borrowings and
current portion of long-term debt and finance leases $
398.8
$
124.1
Accounts payable
1,268.2
932.8
Other current liabilities
942.4
759.1
Total current liabilities
2,609.4
1,816.0
Long-term debt and finance leases
2,800.2
2,020.0
Other long-term liabilities
758.9
550.2
Shareholders' equity: Common stock
124.1
124.1
Capital in excess of par value
854.8
850.3
Retained earnings
3,749.7
3,205.5
Treasury stock at cost
(2,606.4
)
(2,451.4
)
Accumulated other comprehensive loss
(323.0
)
(393.9
)
Total shareholders' equity
1,799.2
1,334.6
$
7,967.7
$
5,720.8
A-3
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
(UNAUDITED) Nine Months Ended
Oct. 2, 2021
Sep. 26, 2020
Operating Activities: Net income $
557.4
$
364.4
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation
122.9
113.7
Amortization
48.6
36.1
Provision for credit losses and sales returns
26.1
50.4
Stock-based compensation
27.1
12.1
Pension plan settlement loss
1.0
---
Deferred taxes and other non-cash taxes
(1.5
)
17.1
Other non-cash expense and loss (income and gain), net
17.7
35.3
Changes in assets and liabilities and other adjustments
(36.5
)
(187.3
)
Net cash provided by operating activities
762.8
441.8
Investing Activities: Purchases of property, plant
and equipment
(130.6
)
(91.7
)
Purchases of software and other deferred charges
(9.8
)
(13.8
)
Proceeds from sales of property, plant and equipment
1.1
0.2
Proceeds from insurance and sales (purchases) of investments, net
1.2
5.2
Proceeds from sale of product line
6.7
---
Payments for acquisitions, net of cash acquired, and investments in
businesses
(1,474.3
)
(262.8
)
Net cash used in investing activities
(1,605.7
)
(362.9
)
Financing Activities: Net increase (decrease) in
borrowings with maturities of three months or less
332.0
(57.1
)
Additional borrowings under revolving credit facility
---
500.0
Repayments of revolving credit facility
---
(500.0
)
Additional long-term borrowings
791.9
493.7
Repayments of long-term debt and finance leases
(8.0
)
(268.9
)
Dividends paid
(164.3
)
(145.2
)
Share repurchases
(126.0
)
(52.2
)
Net (tax withholding) proceeds related to stock-based compensation
(25.5
)
(20.0
)
Net cash provided by (used in) financing activities
800.1
(49.7
)
Effect of foreign currency translation on cash balances
(2.3
)
1.8
Increase (decrease) in cash and cash equivalents
(45.1
)
31.0
Cash and cash equivalents, beginning of year
252.3
253.7
Cash and cash equivalents, end of period $
207.2
$
284.7
A-4
Reconciliation of Non-GAAP Financial
Measures to GAAP
We report our financial results in conformity with accounting
principles generally accepted in the United States of America, or
GAAP, and also communicate with investors using certain non-GAAP
financial measures. These non-GAAP financial measures are not in
accordance with, nor are they a substitute for or superior to, the
comparable GAAP financial measures. These non-GAAP financial
measures are intended to supplement the presentation of our
financial results that are prepared in accordance with GAAP. Based
upon feedback from investors and financial analysts, we believe
that the supplemental non-GAAP financial measures we provide are
useful to their assessments of our performance and operating
trends, as well as liquidity.
Our non-GAAP financial measures exclude the impact of certain
events, activities or strategic decisions. The accounting effects
of these events, activities or decisions, which are included in the
GAAP financial measures, may make it difficult to assess our
underlying performance in a single period. By excluding the
accounting effects, positive or negative, of certain items (e.g.,
restructuring charges, outcomes of certain legal proceedings,
certain effects of strategic transactions and related costs, losses
from debt extinguishments, gains or losses from curtailment or
settlement of pension obligations, gains or losses on sales of
certain assets, gains or losses on investments, and other items),
we believe that we are providing meaningful supplemental
information that facilitates an understanding of our core operating
results and liquidity measures. While some of the items we exclude
from GAAP financial measures recur, they tend to be disparate in
amount, frequency, or timing.
We use these non-GAAP financial measures internally to evaluate
trends in our underlying performance, as well as to facilitate
comparison to the results of competitors for quarters and
year-to-date periods, as applicable.
We use the non-GAAP financial measures described below in the
accompanying news release and presentation.
Sales change ex. currency refers to the increase or decrease in
net sales, excluding the estimated impact of foreign currency
translation, and, where applicable, the calendar shift resulting
from the extra week in the prior fiscal year and currency
adjustment for transitional reporting of highly inflationary
economies. The estimated impact of foreign currency translation is
calculated on a constant currency basis, with prior period results
translated at current period average exchange rates to exclude the
effect of currency fluctuations.
Organic sales change refers to sales change ex. currency,
excluding the estimated impact of acquisitions and product line
divestitures.
We believe that sales change ex. currency and organic sales
change assist investors in evaluating the sales change from the
ongoing activities of our businesses and enhance their ability to
evaluate our results from period to period.
Adjusted operating income refers to income before taxes;
interest expense; other non-operating expense (income), net; and
other expense (income), net.
Adjusted EBITDA refers to adjusted operating income before
depreciation and amortization.
Adjusted operating margin refers to adjusted operating income as
a percentage of net sales.
Adjusted EBITDA margin refers to adjusted EBITDA as a percentage
of net sales.
Adjusted tax rate refers to the projected full-year GAAP tax
rate, adjusted to exclude certain unusual or infrequent events that
are expected to significantly impact that rate, such as effects of
certain discrete tax planning actions, impacts related to the
enactment of the U.S. Tax Cuts and Jobs Act ("TCJA"), where
applicable, and other items.
Adjusted net income refers to income before taxes, tax-effected
at the adjusted tax rate, and adjusted for tax-effected
restructuring charges and other items.
Adjusted net income per common share, assuming dilution
(adjusted EPS) refers to adjusted net income divided by the
weighted average number of common shares outstanding, assuming
dilution.
We believe that adjusted operating margin, adjusted EBITDA
margin, adjusted net income, and adjusted EPS assist investors in
understanding our core operating trends and comparing our results
with those of our competitors.
Net debt to adjusted EBITDA ratio refers to total debt
(including finance leases) less cash and cash equivalents, divided
by adjusted EBITDA for the last twelve months. We believe that the
net debt to adjusted EBITDA ratio assists investors in assessing
our leverage position.
Free cash flow refers to cash flow provided by operating
activities, less payments for property, plant and equipment,
software and other deferred charges, plus proceeds from sales of
property, plant and equipment, plus (minus) net proceeds from
insurance and sales (purchases) of investments. Free cash flow is
also adjusted for, where applicable, certain acquisition-related
transaction costs. We believe that free cash flow assists investors
by showing the amount of cash we have available for debt
reductions, dividends, share repurchases, and acquisitions.
Reconciliations are provided in accordance with Regulations G
and S-K and reconcile our non-GAAP financial measures with the most
directly comparable GAAP financial measures.
A-5
AVERY DENNISON CORPORATION PRELIMINARY RECONCILIATION
FROM GAAP TO NON-GAAP FINANCIAL MEASURES (In millions,
except % and per share amounts)
(UNAUDITED) Three Months Ended Nine Months
Ended
Oct. 2, 2021
Sep. 26, 2020
Oct. 2, 2021
Sep. 26, 2020
Reconciliation from GAAP to Non-GAAP operating
margins: Net sales $
2,071.8
$
1,729.1
$
6,225.1
$
4,980.6
Income before taxes $
224.4
$
197.8
$
748.6
$
482.0
Income before taxes as a percentage of net sales
10.8
%
11.4
%
12.0
%
9.7
%
Adjustments: Interest expense $
18.0
$
15.6
$
50.2
$
54.4
Other non-operating expense (income), net
(0.9
)
0.1
(3.6
)
(0.2
)
Operating income before interest expense, other non-operating
expense (income), and taxes $
241.5
$
213.5
$
795.2
$
536.2
Operating margins
11.7
%
12.3
%
12.8
%
10.8
%
Income before taxes $
224.4
$
197.8
$
748.6
$
482.0
Adjustments: Restructuring charges: Severance and related costs
1.1
6.5
5.1
46.4
Asset impairment and lease cancellation charges
1.3
4.4
1.9
6.2
Transaction and related costs
19.4
---
20.1
3.2
Loss on sale of assets, net
---
---
0.2
---
(Gain) loss on investments
(4.9
)
1.5
(4.9
)
1.5
Gain on sale of product line
(0.9
)
---
(5.7
)
---
Outcomes of legal proceedings, net(1)
---
---
(0.4
)
---
Interest expense
18.0
15.6
50.2
54.4
Other non-operating expense (income), net
(0.9
)
0.1
(3.6
)
(0.2
)
Adjusted operating income (non-GAAP) $
257.5
$
225.9
$
811.5
$
593.5
Adjusted operating margins (non-GAAP)
12.4
%
13.1
%
13.0
%
11.9
%
Reconciliation from GAAP to Non-GAAP net income: As
reported net income $
164.1
$
150.5
$
557.4
$
364.4
Adjustments: Restructuring charges and other items(2)
16.0
12.4
16.3
57.3
Pension plan settlement loss
0.6
---
1.0
---
Tax effect on restructuring charges and other items and impact of
adjusted tax rate
(1.8
)
(2.4
)
(6.1
)
(15.2
)
Adjusted net income (non-GAAP) $
178.9
$
160.5
$
568.6
$
406.5
(1)
2021 YTD includes Brazil indirect tax credit based on the Brazilian
Federal Supreme Court ruling of $29.1, partially offset by
contingent liability related to patent infringement jury verdict of
$26.6 and legal settlement of $2.1.
(2)
Includes pretax restructuring and related charges, transaction and
related costs, loss on sale of assets, gain/loss on investments,
gain on sale of product line, and outcomes of legal proceedings.
A-5 (continued)
AVERY DENNISON CORPORATION PRELIMINARY RECONCILIATION
FROM GAAP TO NON-GAAP FINANCIAL MEASURES (In millions,
except % and per share amounts)
(UNAUDITED) Three Months Ended Nine Months
Ended
Oct. 2, 2021
Sep. 26, 2020
Oct. 2, 2021
Sep. 26, 2020
Reconciliation from GAAP to Non-GAAP net income
per common share: As reported net income per common share,
assuming dilution $
1.96
$
1.79
$
6.64
$
4.34
Adjustments per common share, net of tax: Restructuring charges and
other items(1)
0.20
0.15
0.21
0.68
Tax effect on restructuring charges and other items and impact of
adjusted tax rate
(0.02
)
(0.03
)
(0.07
)
(0.18
)
Adjusted net income per common
share, assuming dilution (non-GAAP)
$
2.14
$
1.91
$
6.78
$
4.84
Weighted average number of common
shares outstanding, assuming dilution
83.7
84.0
83.9
84.0
Our adjusted tax rate was 25.3% for the three and nine
months ended Oct. 2, 2021, and 23.2% and 24.1% for the three and
nine months ended Sep. 26, 2020, respectively.
(1) Includes pretax restructuring and
related charges, transaction and related costs, loss on sale of
assets, gain/loss on investments, gain on sale of product line,
outcomes of legal proceedings, and pension plan settlement
loss.
(UNAUDITED) Three Months
Ended Nine Months Ended
Oct. 2, 2021
Sep. 26, 2020
Oct. 2, 2021
Sep. 26, 2020
Reconciliation of free cash flow: Net cash
provided by operating activities $
286.0
$
257.8
$
762.8
$
441.8
Purchases of property, plant and equipment
(46.8
)
(27.8
)
(130.6
)
(91.7
)
Purchases of software and other deferred charges
(3.4
)
(2.8
)
(9.8
)
(13.8
)
Proceeds from sales of property, plant and equipment
0.1
0.1
1.1
0.2
Proceeds from insurance and sales (purchases) of investments, net
0.8
5.6
1.2
5.2
Payments for certain acquisition-related transaction costs
14.5
---
14.5
---
Free cash flow (non-GAAP) $
251.2
$
232.9
$
639.2
$
341.7
A-6
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Third Quarter Ended NET SALES OPERATING INCOME
(LOSS) OPERATING MARGINS
2021
2020
2021
2020
2021
2020
Label and Graphic Materials
$
1,345.8
$
1,145.4
$
184.9
$
173.1
13.7
%
15.1
%
Retail Branding and Information Solutions
530.7
426.1
58.5
47.0
11.0
%
11.0
%
Industrial and Healthcare Materials
195.3
157.6
18.7
12.5
9.6
%
7.9
%
Corporate Expense
N/A
N/A
(20.6
)
(19.1
)
N/A
N/A
TOTAL FROM OPERATIONS
$
2,071.8
$
1,729.1
$
241.5
$
213.5
11.7
%
12.3
%
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY
INFORMATION Third Quarter Ended OPERATING INCOME
OPERATING MARGINS
2021
2020
2021
2020
Label and Graphic Materials
Operating income and margins, as reported
$
184.9
$
173.1
13.7
%
15.1
%
Adjustments: Restructuring charges: Severance and related costs
(0.4
)
1.4
---
0.1
%
Asset impairment charges
1.2
---
0.1
%
---
Transaction and related costs
0.3
---
---
---
Gain on sale of product line
(0.9
)
---
---
---
Adjusted operating income and margins (non-GAAP)
$
185.1
$
174.5
13.8
%
15.2
%
Depreciation and amortization
28.8
26.0
2.1
%
2.3
%
Adjusted EBITDA and margins (non-GAAP)
$
213.9
$
200.5
15.9
%
17.5
%
Retail Branding and Information
Solutions Operating income and margins, as reported
$
58.5
$
47.0
11.0
%
11.0
%
Adjustments: Restructuring charges: Severance and related costs
0.7
2.2
0.2
%
0.5
%
Asset impairment charges
0.1
0.7
---
0.2
%
Transaction and related costs
18.7
---
3.5
%
---
(Gain) loss on investments
(4.9
)
1.5
(0.9
%)
0.4
%
Adjusted operating income and margins (non-GAAP)
$
73.1
$
51.4
13.8
%
12.1
%
Depreciation and amortization
26.3
19.0
4.9
%
4.4
%
Adjusted EBITDA and margins (non-GAAP)
$
99.4
$
70.4
18.7
%
16.5
%
Industrial and Healthcare
Materials Operating income and margins, as reported
$
18.7
$
12.5
9.6
%
7.9
%
Adjustments: Restructuring charges: Severance and related costs
0.3
2.9
0.1
%
1.8
%
Asset impairment charges
---
3.7
---
2.4
%
Transaction and related costs
0.4
---
0.2
%
---
Adjusted operating income and margins (non-GAAP)
$
19.4
$
19.1
9.9
%
12.1
%
Depreciation and amortization
6.8
7.0
3.5
%
4.5
%
Adjusted EBITDA and margins (non-GAAP)
$
26.2
$
26.1
13.4
%
16.6
%
A-7
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Nine Months Ended NET SALES OPERATING INCOME
(LOSS) OPERATING MARGINS
2021
2020
2021
2020
2021
2020
Label and Graphic Materials
$
4,099.0
$
3,420.4
$
639.2
$
483.1
15.6
%
14.1
%
Retail Branding and Information Solutions
1,542.7
1,122.9
160.6
67.2
10.4
%
6.0
%
Industrial and Healthcare Materials
583.4
437.3
64.7
34.9
11.1
%
8.0
%
Corporate Expense
N/A
N/A
(69.3
)
(49.0
)
N/A
N/A
TOTAL FROM OPERATIONS
$
6,225.1
$
4,980.6
$
795.2
$
536.2
12.8
%
10.8
%
RECONCILIATION FROM GAAP TO NON-GAAP
SUPPLEMENTARY INFORMATION Nine Months Ended
OPERATING INCOME OPERATING MARGINS
2021
2020
2021
2020
Label and Graphic Materials
Operating income and margins, as reported
$
639.2
$
483.1
15.6
%
14.1
%
Adjustments: Restructuring charges: Severance and related costs
0.1
26.7
---
0.8
%
Asset impairment charges
1.3
0.9
---
0.1
%
Transaction and related costs
0.4
0.7
---
---
Outcomes of legal proceedings, net(1)
(26.3
)
---
(0.6
%)
---
Gain on sale of product line
(5.7
)
---
(0.1
%)
---
Adjusted operating income and margins (non-GAAP)
$
609.0
$
511.4
14.9
%
15.0
%
Depreciation and amortization
86.5
78.4
2.1
%
2.2
%
Adjusted EBITDA and margins (non-GAAP)
$
695.5
$
589.8
17.0
%
17.2
%
Retail Branding and Information
Solutions Operating income and margins, as reported
$
160.6
$
67.2
10.4
%
6.0
%
Adjustments: Restructuring charges: Severance and related costs
3.2
15.0
0.2
%
1.4
%
Asset impairment and lease cancellation charges
0.6
1.6
0.1
%
0.1
%
Transaction and related costs
18.9
2.5
1.2
%
0.2
%
Outcomes of legal proceedings, net(2)
25.9
---
1.7
%
---
Loss on sale of asset
0.5
---
---
---
(Gain) loss on investments
(4.9
)
1.5
(0.3
%)
0.1
%
Adjusted operating income and margins (non-GAAP)
$
204.8
$
87.8
13.3
%
7.8
%
Depreciation and amortization
64.3
51.6
4.1
%
4.6
%
Adjusted EBITDA and margins (non-GAAP)
$
269.1
$
139.4
17.4
%
12.4
%
Industrial and Healthcare
Materials Operating income and margins, as reported
$
64.7
$
34.9
11.1
%
8.0
%
Adjustments: Restructuring charges: Severance and related costs
0.8
4.9
0.1
%
1.1
%
Asset impairment charges
---
3.7
---
0.8
%
Transaction and related costs
0.8
---
0.1
%
---
Gain on sale of assets
(0.3
)
---
---
---
Adjusted operating income and margins (non-GAAP)
$
66.0
$
43.5
11.3
%
9.9
%
Depreciation and amortization
20.7
19.8
3.6
%
4.6
%
Adjusted EBITDA and margins (non-GAAP)
$
86.7
$
63.3
14.9
%
14.5
%
(1) 2021 YTD includes Brazil indirect tax credit based on the
Brazilian Federal Supreme Court ruling of $28.4, partially offset
by legal settlement of $2.1. (2) 2021 YTD includes contingent
liability related to patent infringement jury verdict of $26.6,
partially offset by Brazil indirect tax credit based on the
Brazilian Federal Supreme Court ruling of $.7.
A-8
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION Reconciliation of Adjusted EBITDA Margins
(In millions, except %) (UNAUDITED) (13 weeks)
(13 weeks) (13 weeks)
Label and Graphic
Materials
3Q21
3Q20
3Q19
Net sales
$
1,345.8
$
1,145.4
$
1,185.1
Operating income before interest expense, other non-operating
expense (income) and taxes, as reported
$
184.9
$
173.1
$
159.0
Operating margins, as reported
13.7
%
15.1
%
13.4
%
Non-GAAP adjustments: Restructuring
charges: Severance and related costs
$
(0.4
)
$
1.4
$
1.2
Asset impairment and lease cancellation charges
1.2
-
-
Other items
(0.6
)
-
-
Adjusted operating income (non-GAAP)
$
185.1
$
174.5
$
160.2
Adjusted operating margins (non-GAAP)
13.8
%
15.2
%
13.5
%
Depreciation and amortization
$
28.8
$
26.0
$
24.3
Adjusted EBITDA (non-GAAP)
$
213.9
$
200.5
$
184.5
Adjusted EBITDA margins (non-GAAP)
15.9
%
17.5
%
15.6
%
Retail Branding and Information
Solutions
3Q21
3Q20
3Q19
Net sales
$
530.7
$
426.1
$
406.8
Operating income before interest expense, other non-operating
expense (income) and taxes, as reported
$
58.5
$
47.0
$
45.7
Operating margins, as reported
11.0
%
11.0
%
11.2
%
Non-GAAP adjustments: Restructuring
charges: Severance and related costs
$
0.7
$
2.2
$
1.2
Asset impairment and lease cancellation charges
0.1
0.7
-
Other items
13.8
1.5
-
Adjusted operating income (non-GAAP)
$
73.1
$
51.4
$
46.9
Adjusted operating margins (non-GAAP)
13.8
%
12.1
%
11.5
%
Depreciation and amortization
$
26.3
$
19.0
$
13.3
Adjusted EBITDA (non-GAAP)
$
99.4
$
70.4
$
60.2
Adjusted EBITDA margins (non-GAAP)
18.7
%
16.5
%
14.8
%
Industrial and Healthcare
Materials
3Q21
3Q20
3Q19
Net sales
$
195.3
$
157.6
$
169.5
Operating income before interest expense, other non-operating
expense (income) and taxes, as reported
$
18.7
$
12.5
$
17.7
Operating margins, as reported
9.6
%
7.9
%
10.4
%
Non-GAAP adjustments: Restructuring
charges: Severance and related costs
$
0.3
$
2.9
$
0.9
Asset impairment charges
-
3.7
-
Other items
0.4
-
-
Adjusted operating income (non-GAAP)
$
19.4
$
19.1
$
18.6
Adjusted operating margins (non-GAAP)
9.9
%
12.1
%
11.0
%
Depreciation and amortization
$
6.8
$
7.0
$
6.4
Adjusted EBITDA (non-GAAP)
$
26.2
$
26.1
$
25.0
Adjusted EBITDA margins (non-GAAP)
13.4
%
16.6
%
14.7
%
Corporate expense
3Q21
3Q20
3Q19
Corporate expense, as reported
$
(20.6
)
$
(19.1
)
$
(22.7
)
Non-GAAP adjustments: Restructuring
charges: Severance and related costs
$
0.5
$
-
$
-
Other items
-
-
3.4
Corporate expense (non-GAAP)
$
(20.1
)
$
(19.1
)
$
(19.3
)
Total Company
3Q21
3Q20
3Q19
Net sales
$
2,071.8
$
1,729.1
$
1,761.4
Operating income before interest expense, other non-operating
expense (income) and taxes, as reported
$
241.5
$
213.5
$
199.7
Operating margins, as reported
11.7
%
12.3
%
11.3
%
Non-GAAP adjustments: Restructuring
charges: Severance and related costs
$
1.1
$
6.5
$
3.3
Asset impairment and lease cancellation charges
1.3
4.4
-
Other items
13.6
1.5
3.4
Adjusted operating income (non-GAAP)
$
257.5
$
225.9
$
206.4
Adjusted operating margins (non-GAAP)
12.4
%
13.1
%
11.7
%
Depreciation and amortization
$
61.9
$
52.0
$
44.0
Adjusted EBITDA (non-GAAP)
$
319.4
$
277.9
$
250.4
Adjusted EBITDA margins (non-GAAP)
15.4
%
16.1
%
14.2
%
A-9
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION Reconciliation of Adjusted EBITDA Margins and
Net Debt to Adjusted EBITDA (In millions, except %)
(UNAUDITED) (14 weeks) (13 weeks) (13 weeks) (13
weeks) QTD
Total Company
4Q20
1Q21
2Q21
3Q21
Net sales
$
1,990.9
$
2,051.3
$
2,102.0
$
2,071.8
Operating income before interest expense, other non-operating
expense (income) and taxes, as reported
$
273.0
$
283.8
$
269.9
$
241.5
Operating margins, as reported
13.7
%
13.8
%
12.8
%
11.7
%
Non-GAAP adjustments: Restructuring
charges: Severance and related costs
$
2.7
$
2.4
$
1.6
$
1.1
Asset impairment and lease cancellation charges
-
0.5
0.1
1.3
Other items
(6.4
)
(2.0
)
(2.3
)
13.6
Adjusted operating income (non-GAAP)
$
269.3
$
284.7
$
269.3
$
257.5
Adjusted operating margins (non-GAAP)
13.5
%
13.9
%
12.8
%
12.4
%
Depreciation and amortization
$
55.5
$
54.4
$
55.2
$
61.9
Adjusted EBITDA (non-GAAP)
$
324.8
$
339.1
$
324.5
$
319.4
Adjusted EBITDA margins (non-GAAP)
16.3
%
16.5
%
15.4
%
15.4
%
Total Debt
$
3,199.0
Less: Cash and cash equivalents
207.2
Net Debt
$
2,991.8
Net Debt to Adjusted EBITDA LTM* (non-GAAP)
2.3
*LTM = Last twelve months (4Q20 to 3Q21)
A-10
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (UNAUDITED) Third Quarter
2021 (vs. 2020)
Total Company
Label and Graphic Materials
Retail Branding and Information
Solutions
Industrial and Healthcare
Materials
Reconciliation from GAAP to Non-GAAP sales change Reported
net sales change
19.8%
17.5%
24.5%
23.9%
Foreign currency translation
(2.8%)
(2.9%)
(2.4%)
(4.0%)
Extra week impact
---
---
---
---
Sales change ex. currency (non-GAAP)(1)
17.0%
14.6%
22.2%
20.0%
Acquisitions and product line divestitures
(3.0%)
(0.6%)
(8.8%)
(5.1%)
Organic sales change (non-GAAP)(1)
13.9%
14.0%
13.5%
14.9%
Third Quarter 2021 (vs. 2019)(2)
Total Company
Label and Graphic Materials
Retail Branding and Information
Solutions
Industrial and Healthcare
Materials
Reconciliation from GAAP to Non-GAAP sales change Reported
net sales change
17.6%
13.6%
30.5%
15.2%
Foreign currency translation
(2.0%)
(1.9%)
(1.3%)
(4.1%)
Extra week impact
---
---
---
---
Sales change ex. currency (non-GAAP)(1)
15.6%
11.6%
29.2%
11.0%
Acquisitions and product line divestitures
(5.4%)
(0.4%)
(20.5%)
(4.7%)
Organic sales change (non-GAAP)(1)
10.1%
11.2%
8.7%
6.4%
Nine Months Ended 2021 (vs. 2020)
Total Company
Label and Graphic Materials
Retail Branding and Information
Solutions
Industrial and Healthcare
Materials
Reconciliation from GAAP to Non-GAAP sales change Reported
net sales change
25.0%
19.8%
37.4%
33.4%
Foreign currency translation
(5.0%)
(5.3%)
(3.1%)
(6.4%)
Extra week impact
(1.4%)
(1.4%)
(1.4%)
(1.6%)
Sales change ex. currency (non-GAAP)(1)
18.6%
13.1%
32.9%
25.4%
Acquisitions and product line divestitures
(2.1%)
(0.7%)
(5.4%)
(4.6%)
Organic sales change (non-GAAP)(1)
16.5%
12.4%
27.5%
20.9%
(1) Totals may not sum due to rounding. (2) Third quarter 2021 vs.
2019 results are presented to facilitate comparison with
pre-pandemic performance.
View source
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