Avery Dennison Corporation
CEO : Mr. Mitchell R. Butier
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | -7.2% YoY | -25.7% | -31.1% | 2023-02-02 |
Greg Lovins says,
Q4 2022 Earnings
- Adjusted earnings per share of $1.65, down 14% ex currency compared to prior year due to a low double-digit volume decline
- Full year adjusted earnings per share of $9.15, up 11% ex currency, with organic sales growth of 10% as pricing offset a low single-digit volume decline
- Generated $667 million of free cash flow, and invested $300 million on fixed capital and IT projects as they continue to accelerate investments in Intelligent Labels
- Despite a challenge with high inventory levels, their average free cash flow conversion over the past three years has been roughly 100% of GAAP net income and they expect this to continue in 2023
Long-term Targets
- Sales growth on a constant currency basis was 16% annually, well above their target and GDP
- Adjusted EBITDA dollars have grown 28% compared to 2020, with adjusted EBITDA margin of 15.1% in 2022
- Adjusted earnings per share grew 13.5% annually over the past two years, surpassing their target of 10%
- Return on capital was 17.4% in 2022 and in the top quartile relative to their capital market peers
Outlook for 2023
- Starting the year in a challenging volume environment due to continued destocking in the first quarter in both the Label materials and Apparel businesses
- Expect the first quarter to be comparable to Q4 of 2022, which was $1.65 in adjusted earnings per share, but anticipate a strong rebound beginning in Q2 and moving through the back half of the year, with a second half earnings run rate of more than $10 annualized
- Anticipate adjusted earnings per share to be in the range of $9.15 to $9.55 for 2023 overall, with roughly 5% organic sales growth, the majority from higher prices, and strategic growth investments of roughly $0.25
- Continuing to accelerate investments in Intelligent Labels and opening a new factory in the second half of 2023 to support growth
Mitch Butier says,
Impressive Results Despite Challenging Environment
- Delivered double-digit EPS growth on a constant currency basis, up 40% from 2019 levels
- Both Materials and Solutions Group delivered solid top and bottom-line results
Operational Restructuring
- Combined LGM and IHM to create Materials Group, reflecting a strategy of leveraging operational capabilities and technologies
- Renamed RBIS to Solutions Group to reflect broader reach and ambitions
Inventory Buildup and Reduction
- High inventory levels downstream caused by inflation and supply chain disruptions were reduced swiftly beginning in November
- Sudden decline in volume indicative of previous macro slowdowns
- Initiated temporary cost reduction actions, ramping up restructuring initiatives, and paring back capital investments in base businesses while protecting investments in high-growth initiatives
2023 Guidance
- Targeting mid- to single-digit EPS growth in 2023, reflecting a soft Q1 driven by inventory corrections, followed by a second half run rate for EPS of more than $10
Intelligent Labels
- Focus on driving outsized growth in high-value categories through Intelligent Labels, expected to be a $1 billion platform this year
- Expect Intelligent Labels to grow more than 20% annually in the coming years
Strategic Pillars
- Continue to focus on five overarching strategic pillars: drive growth in high-value categories, grow profitably in base businesses, focus on productivity, effectively allocate capital, and lead in an environmentally and socially responsible manner
Q & A sessions,
Excess Inventory
- Customers reported having excess inventory levels ranging from 2 to 4 weeks, particularly on the material side.
- End customers in the Apparel sector also have containers full of excess inventory waiting for the next season.
- Actual hard data shows a drop in inventory levels within Apparel compared to pre-pandemic levels, but there is still excess inventory present.
Logistics Growth
- No specific mention of a $1 billion target for logistics by 2030.
- Logistics discussed in relation to the growth and opportunity the company sees.
Inflation
- Overall net price inflation had a relatively immaterial impact sequentially from Q3 to Q4.
- Expect roughly neutral impact year-over-year from raw materials, wage, and utility inflation.
- Some sequential benefit in films and chemicals in Q4, and some sequential pressure on specialty papers.
Consumption Moderation
- Expect consumption to moderate, particularly in Apparel following a weak holiday season.
- GDP outlooks for Europe and North America are modest to slight recession.
Majority of Inventory Correction
- Company has confidence that the current excess inventory levels are a majority of inventory correction.
- Excess inventory is expected to unwind at a much quicker pace than traditionally seen.
- Clear links between product consumption and demand relative to consumption of nondurable consumer goods.
No bad stock 