Avery Dennison (AVY), based in Glendale California, is a leading manufacturer and distributor of labeling and packaging materials and solutions. It was incorporated in 1977 in Delaware as Avery International Corporation and became Avery Dennison in 1990, when it merged with Dennison Manufacturing Company. With operations in over 50 countries, it has a strong global presence. In 2013, international operations contributed toward 75% of its revenues. Emerging markets (Asia, Eastern Europe, Middle East/North Africa and Latin America) are also an important aspect of Avery’s revenue stream comprising 47% of sales in the most recent year. On the downside, this has meant more expenses due to currency translation, and uneven market conditions in recent years. These costs, however are justified since consumer product companies experience comparatively higher growth in emerging markets.
The company’s essential businesses are the Pressure Sensitive Materials segment (PSM) and the Retail Branding and Information Solutions segment (RBIS). Its other specialty converting business consists of Vancive Medical Technologies, which delivers medical tapes and technologies for surgical, wound care, and electromagnetic applications.
The Pressure Sensitive Materials segment generated 73% of the top line for Avery Dennison in 2013.It largely consists of the labeling and packaging business. Its proprietary technology gives customers appealing labeling products that are functional and cost effective. It also consists of the graphics and reflective solutions and performance tapes, where product lines are still relatively small but fast growing and could very likely add to revenue growth going forward. End products of this business are primarily used either to enhance brands or transfer information. Despite revenue growth, this segment has had difficulty in driving additional margins over the last few quarters.
The Retail Branding and Information Solutions segment contributed approximately 26% of revenues in 2013. The business tends to be seasonal and generates higher volume during the holiday season and fall. It assists retailers and apparel makers with solutions to enhance their brands and speed up the performance of their supply chains. The division is taking part in the RFID (radio frequency identification) trend in retail through the production of RFID tags and printers, and of encoders that are gaining traction. RFID is an improvement over the current technology and is a significant initiative for retailers around the world. It makes it easier for retailers to track their inventory, improving accuracy and efficiency.
As Avery Dennison is a consumer products company, the uneven economy and commodity cost volatility have created difficult operating conditions, thereby affecting volumes. Avery has dealt with the current economic environment in a fairly impressive way. It has been able to maintain its strong financial position and drive share earnings by attempting to curb manufacturing inefficiencies, and by cost controls and restructuring efforts. In 2013, it sold its Office and Consumer Products segment, which was affected by increased competition and weak demand, together with its Design and Engineering Solutions Group to CCL Industries. Net sale proceeds of roughly $400 million were used to repurchase shares and contribute to an additional pension plan. The sale allowed AVY to focus on its more-profitable divisions and stay focused on its goal of driving value for shareholders. Innovation has also helped the company to add to its top line. A majority of new products stem from Avery’s R&D program ($96 million in 2013).New products introductions, stemming from this program have contributed approximately a third of sales growth in 2013.Additionally, continued share repurchases and regular dividends have helped to drive returns for shareholders.
Avery Dennison should continue to perform well in the near term as it stays focused on its core businesses and gains from cost-cutting efforts. For a more detailed analysis of the company’s prospects, as well as the particular investment merits of the stock, subscribers can peruse our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have a position in any of the stocks mentioned.