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Why Is Avery Dennison (AVY) Down 8.8% Since Last Earnings Report?

Zacks Equity Research
·4 min read

It has been about a month since the last earnings report for Avery Dennison (AVY). Shares have lost about 8.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Avery Dennison due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Avery Dennison Tops Q1 Earnings Estimates, Ups '22 View

Avery Dennison reported first-quarter 2022 adjusted earnings of $2.40 per share, beating the Zacks Consensus Estimate of $2.18. The bottom line was in line year over year.

Including one-time items, the company reported EPS of $2.39 compared with the year-ago quarter’s $2.50 per share.

Total revenues increased 14.5% year over year to $2,349 million, beating the Zacks Consensus Estimate of $2,299 million. Sales were up 12.7% year over year on an organic basis.

Cost of sales in the quarter rose 17% year over year to $1,708 million. The gross profit was up 7.4% year over year to $641.3 million. The gross margin contracted to 27% in the first quarter from the prior-year quarter’s 29%.

Marketing, general and administrative expenses were $355 million compared with the $312 million incurred in the year-ago quarter. The adjusted operating profit amounted to around $286 million compared with the prior-year quarter’s $285 million. The adjusted operating margin was 12.2% in the quarter compared with the year-ago quarter’s 13.9%.

Segment Highlights

Revenues in the Label and Graphic Materials (LGM) segment increased 8% year over year to $1,480 million in the reported quarter. Label and Packaging Materials sales were up low-double digits from prior-year quarter’s levels, with stellar growth witnessed in the high-value product categories and the base business. Sales increased by high-single digits in the Graphics and Reflective Solutions businesses. On an organic basis, reported sales were up 12%. The segment’s adjusted operating profit declined 9% year on year to $204 million.

Revenues in the Retail Branding and Information Solutions (RBIS) segment rose 41% year over year to $679 million. On an organic basis, sales were up 20%, reflecting solid growth in both the high-value categories and the base business. The segment’s adjusted operating income was $92 million compared with the year-ago quarter’s $62 million.

Net sales in the Industrial and Healthcare Materials (IHM) segment totaled $190 million, down 1% from $192 million recorded in the prior-year quarter. The figure marks a low-single-digit decline in the industrial categories and a low-double digits increase in the healthcare categories. The segment reported an adjusted operating income of $16 million compared with the prior-year quarter’s $24 million.

Financial Updates

Free cash flow in the reported quarter was $73 million compared with the year-earlier quarter’s $182 million. The company returned $208 million in cash to shareholders through share repurchases and dividend payments in the first quarter.

Avery Dennison ended the first quarter with cash and cash equivalents of $147 million compared with $328 million at the end of the prior-year quarter. The company’s net debt to adjusted EBITDA ratio was 2.35.

Guidance

Avery Dennison now expects adjusted EPS guidance for 2022 in the band of $9.45-$9.85, up from the prior guidance of $9.35-$9.75.

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How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Avery Dennison has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Avery Dennison has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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