Avery Dennison(AVY) - 2024 Q1 - Quarterly Results

First Quarter 2024 Results Avery Dennison reported strong first-quarter results with significant growth in sales and earnings, leading to a maintained full-year adjusted EPS guidance Financial Highlights Avery Dennison reported strong first-quarter results with significant year-over-year growth in earnings per share and net sales, driven by volume and productivity gains Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Change (YoY) | | :--- | :--- | :--- | | Reported EPS | $2.13 | +43% | | Adjusted EPS (non-GAAP) | $2.29 | +35% | | Net Sales | $2.2 billion | +4% | | Sales Change ex. currency (non-GAAP) | +4% | N/A | | Organic Sales Change (non-GAAP) | +3% | N/A | - CEO Deon Stander attributed the strong earnings growth to higher volume and productivity gains[2] - The Materials Group experienced significant volume growth as downstream inventory destocking subsided, while the Solutions Group saw strong growth in high-value categories[3] - The company is targeting another year of significant growth in Intelligent Labels in 2024, expecting the apparel industry to normalize and accelerate solution adoption[3] Full-Year 2024 Guidance The company slightly revised its full-year 2024 reported EPS guidance downward while maintaining its adjusted EPS forecast FY2024 Earnings Per Share Guidance | Metric | Previous Guidance | Revised/Current Guidance | | :--- | :--- | :--- | | Reported EPS | $8.65 to $9.15 | $8.60 to $9.10 | | Adjusted EPS (non-GAAP) | $9.00 to $9.50 | $9.00 to $9.50 (unchanged) | - The guidance for adjusted EPS excludes an estimated $0.40 per share impact from restructuring charges and other items[9] Segment Performance Segment performance showed growth in both Materials and Solutions groups, driven by volume and high-value categories respectively Materials Group The Materials Group reported increased sales and significant margin expansion, driven by volume growth as destocking subsided Materials Group Q1 2024 Performance | Metric | Q1 2024 | Change (YoY) | | :--- | :--- | :--- | | Reported Sales | $1.5 billion | +2% | | Organic Sales | N/A | +2% | | Reported Operating Margin | 15.1% | +410 bps | | Adjusted EBITDA Margin (non-GAAP) | 18.3% | +410 bps | - Label Materials sales were up mid-single digits on an organic basis, with volume/mix up low-double digits, partially offset by deflation-related price reductions[5] - Graphics and Reflectives, and Performance Tapes and Medical were down mid-single digits organically[5] Solutions Group The Solutions Group achieved strong sales growth, particularly in high-value categories, with improved adjusted EBITDA margin Solutions Group Q1 2024 Performance | Metric | Q1 2024 | Change (YoY) | | :--- | :--- | :--- | | Reported Sales | $655 million | +8% | | Organic Sales | N/A | +6% | | Reported Operating Margin | 8.6% | +10 bps | | Adjusted EBITDA Margin (non-GAAP) | 16.1% | +40 bps | - Sales in high-value categories were up low double-digits organically, while base solutions were up low-single digits organically[6] - The company continues to anticipate the apparel industry will normalize in mid-2024[6] - Margin was down sequentially due to seasonality and the add-back of 2023 temporary cost reductions; sequential margin improvement is expected in Q2[6] Other Financial Information The company maintained a strong balance sheet, returned capital to shareholders, and realized savings from restructuring efforts Balance Sheet and Capital Deployment Avery Dennison returned $81 million to shareholders in Q1 2024 while maintaining a strong balance sheet with a 2.3x net debt ratio - Returned $81 million in cash to shareholders in Q1 2024, consisting of $65.3 million in dividends and $16 million in share repurchases (0.1 million shares)[7][25] - The company's balance sheet remains strong, with a Net debt to adjusted EBITDA (non-GAAP) ratio of 2.3x at the end of Q1[7][42] Income Taxes and Cost Reduction Actions The company reported an effective tax rate of 26.5% and realized $19 million in pre-tax savings from restructuring actions - The reported effective tax rate was 26.5% in Q1, while the adjusted tax rate (non-GAAP) was 26.0%[7] - The company realized approximately $19 million in pre-tax savings from restructuring in Q1, while incurring about $6 million in pre-tax restructuring charges[8] Financial Statements (Unaudited) The unaudited financial statements show increased net sales and income, a stable balance sheet, and improved operating cash flow Consolidated Statements of Income The consolidated statements of income show increased net sales and a significant rise in net income for Q1 2024 Q1 Statement of Income Highlights (in millions, except per share) | Account | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $2,151.3 | $2,065.0 | | Gross profit | $632.2 | $542.3 | | Income before taxes | $234.4 | $168.3 | | Net income | $172.4 | $121.2 | | Net income per share, diluted | $2.13 | $1.49 | Consolidated Balance Sheets The balance sheets indicate stable total assets and increased shareholders' equity as of March 30, 2024 Balance Sheet Highlights (in millions) | Account | Mar 30, 2024 | Apr 1, 2023 | | :--- | :--- | :--- | | Total current assets | $2,886.8 | $2,989.2 | | Total assets | $8,255.2 | $8,222.3 | | Total current liabilities | $3,308.2 | $2,643.7 | | Total long-term debt | $2,069.9 | $2,910.8 | | Total shareholders' equity | $2,204.0 | $2,042.9 | Consolidated Statements of Cash Flows Operating cash flow significantly improved in Q1 2024, offsetting cash used in investing and financing activities Q1 Cash Flow Highlights (in millions) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $119.8 | $1.9 | | Net cash used in investing activities | ($62.0) | ($116.6) | | Net cash (used in) provided by financing activities | ($85.0) | $299.8 | | Decrease in cash and cash equivalents | ($29.3) | $184.1 | Reconciliation of Non-GAAP Financial Measures The company provides non-GAAP financial measures to offer a clearer view of core operating performance and facilitate comparisons Explanation of Non-GAAP Measures The company utilizes non-GAAP financial measures to provide a clearer understanding of underlying performance trends by excluding specific items - Non-GAAP measures are used internally to evaluate underlying performance and facilitate competitor comparisons[27] - Key non-GAAP measures include: Sales change ex. currency, Organic sales change, Adjusted operating income/margin, Adjusted EBITDA/margin, Adjusted net income, Adjusted EPS, Net debt to adjusted EBITDA ratio, and Adjusted free cash flow[28][29][30] - These measures exclude items such as restructuring charges, certain legal outcomes, strategic transaction costs, and currency adjustments for highly inflationary economies to provide a clearer view of core operating results[28] Reconciliation Tables Reconciliation tables detail adjustments from GAAP to non-GAAP figures, showing higher adjusted net income and positive adjusted free cash flow Q1 2024 GAAP to Non-GAAP Net Income Reconciliation (in millions) | Description | Amount | | :--- | :--- | | As reported net income (GAAP) | $172.4 | | Adjustments (Restructuring, other items) | $19.3 | | Argentine interest income | ($3.6) | | Tax effect and impact of adjusted tax rate | ($3.0) | | Adjusted net income (non-GAAP) | $185.1 | Q1 2024 GAAP to Non-GAAP EPS Reconciliation | Description | Amount | | :--- | :--- | | As reported net income per common share (GAAP) | $2.13 | | Adjustments per share, net of tax | $0.16 | | Adjusted net income per common share (non-GAAP) | $2.29 | Q1 Adjusted Free Cash Flow Reconciliation (in millions) | Description | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $119.8 | $1.9 | | Less: Purchases of PP&E, software, etc. | ($55.7) | ($69.8) | | Other adjustments (Argentine Swap, asset sales) | ($6.0) | ($3.3) | | Adjusted free cash flow (non-GAAP) | $58.1 | ($71.2) | Company Information This section provides an overview of Avery Dennison's business and outlines key risk factors and forward-looking statement disclaimers About Avery Dennison Avery Dennison is a global materials science and digital identification solutions company serving diverse industries worldwide - The company is a global materials science and digital identification solutions provider, offering products like labeling materials, RFID inlays, and software[11] - Serves a wide range of industries including home and personal care, apparel, e-commerce, logistics, food, pharmaceuticals, and automotive[12] - Employs approximately 35,000 people in over 50 countries, with reported sales of $8.4 billion in 2023[12] "Safe Harbor" Statement and Risk Factors The document contains forward-looking statements subject to various risks, including global economic conditions and raw material costs - The release contains forward-looking statements that are not guarantees of future performance and are subject to risks[13] - Key near-term risk factors include: global economic conditions, competitor actions, raw material costs, ability to pass on price increases, currency fluctuations, and acquisition integration[14] - Other risks include international operations (e.g., China, geopolitical conflicts), demand fluctuations, IT disruptions, tax law changes, and human capital retention[14]